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February 1, 2021

Why Your CPA Says "No" to Your S-Corp

So you've talked to your CPA about the S-Corp before and received an emphatic "NO" from them about it. But did you receive a REASON for that "no"? If you did it likely wasn't a very specific answer, but luckily for you, we've heard all the excuses before and we're here to debunk them

"It's too complicated to manage"

Translation: It's too complicated for THEM to manage. For you, the business owner, there's actually not much more you need to do differently than being a sole proprietor.
S-Corp is a pass-through entity, so as long as you're maintaining a bank account for the business and paying yourself a payroll, your day-to-day is fairly unchanged.

More on pass-thru entities (like disregarded entities) here.

"It's too expensive" 

Translation; it's too expensive for THEM to manage. There is some merit to this argument; your average CPA charging by the hour for bookkeeping and payroll services would cost you hundreds, if not thousands, per month to keep your S-Corp up to date. However, this is only true if you're using the old-fashioned methods of maintenance, i.e., tracking your transactions with Quickbooks Desktop or spreadsheet, manually processing payroll, doing all the work themselves instead of leveraging less expensive labor sources and technology to get the work done. 

 "You won't get enough benefit from it to outpace the costs" 

Translation; you'll have a little value with THEM. At a certain income level, using a service like Formations will definitely show you a ton of value. Using a fairly low-cost solution like Formations will run several thousand dollars a year to maintain the S-Corp and if you're making enough income, you will properly leverage the entity for the full tax savings possible! We are on record saying that if you're making less than $60k per year (gross income) then your CPA likely be right, You won't get enough benefit from it today, but that doesn't mean you shouldn't be thinking about the switch for the future.

Let's say you've been in business for a couple of years and your income is increasing steadily but slowly, and you're probably about to cross that 60k threshold but you're not sure. Nothing is stopping you from beginning to train yourself to treat your business like a business right now. This means make sure you have an EIN (Employer Identification Number) and an LLC (neither of which will change your tax situation) and a business bank account to run your activity through. This way you are fully ready when your income reaches the right place to "flip the switch" and convert to an S-Corp to turbo-charge your tax savings.

We at Formations have several subscription levels, including our "Incubator" level which is specifically for new and growing businesses to get ready to become S-Corps when they get to the right point in the business's life.  

Click here to see what other CPAs have to say about S-corp!

Not a Formations customer yet? 

Do you want to learn more about how to save on taxes as an S-Corp? Reach out to us, We are here to help!

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