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How Does An S-Corporation Save Me Money?

How does an S-Corporation Save Money?

How Does An S-Corporation Save Money?

If you have read our post about S-Corporations and determining a reasonable salary, you’re probably wondering how S-Corps help save you money.

Because it’s a requirement to pay yourself a reasonable salary when operating an S-Corp, savings on your taxes comes into play when your reasonable salary is more than your net income. This lets you take a distribution.

Distributions are amounts of cash that you can take out of your business. Distributions are not subject to payroll taxes so by taking a distribution, you save by not paying payroll taxes on that amount of money.

When told about this, most clients ask, “I can just lower my salary then, right?” The answer is: Nope. You are required to have reasonable compensation, which is discussed in the blog post.

After your reasonable compensation is taken care of, you’re good to go to make distributions.

Another big savings item we see is on the health insurance side. If you need to purchase your own health insurance as an S-Corporation, you can purchase it through your business instead of the individual exchange. This often results in you being able to buy better insurance.

However, we do recommend that you talk to an insurance broker before you make any decisions about your health insurance since we do not provide those services.

The last area in which we see savings for our S-Corp clients is when we are putting an accountability and reimbursement plan into place. Depending on your business, we can help you set up a plan to pay for things like your cell phone and mileage. However, this area of savings is very business-specific and depends on the type of business you do.

Should Everyone Be an S-Corporation?

No. An S-Corp is a more complicated form of business that requires you to set up payroll. Becoming an S-Corp also depends on how much money the business is making and your personal tax situation. We have covered some minimums in this post.

TL;DR: Being an S-Corporation can save you money — if you hit the minimum income threshold and set things up correctly.

P.S. Want to learn how to manage your money better as a therapist? Now you can learn directly from Toni Cameron, CPA with our new on-demand webinars! Check out our most popular webinars here.
Khaled - TLDR

Khaled Albadawi, CPA

Principal & CEO

Khaled joined TL;DR as Principal in December of 2022, and has quickly hit the ground running offering a fresh new perspective for the TL;DR team and clients. He’s a natural entrepreneur & leader, starting his days at 4 AM with a nice cup of coffee to get a jumpstart on projects before the business world wakes up. His one piece of advice to business owners? Ask yourself if you are creating just another job or a business. Ideally, you should be building something that doesn’t require you to be there 40 hours a week!

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