Demystifying S Corporations: Understanding Taxes, Payments, and Bookkeeping

◻An S Corp is a tax entity that requires a legal entity like an LLC or Corporation. It offers tax benefits but is not always the best option.

◼S Corp profits are not subject to FICA taxes, but owners must pay themselves through payroll to contribute to Social Security and Medicare.

◽Proper bookkeeping is crucial for S Corps to track income, expenses, and profits, helping with tax payments and savings.

◾Additional costs of an S Corp include payroll expenses and potential state taxes. Consulting with a tax professional is essential.

◿Getting taxed on money remaining in the business account is a common misconception. S Corp owners are taxed based on profits, regardless of distribution.

What is an S Corp, and how does it differ from a sole proprietorship?

—An S Corp is a tax entity that offers tax benefits, while a sole proprietorship is a simple business structure. S Corps require a legal entity, and taxes pass through to the owner's personal return.

How do S Corp taxes work?

—S Corp profits are not subject to FICA taxes, but owners must pay themselves through payroll to contribute to Social Security and Medicare. Personal tax returns include the profits and payroll wages.

Why is bookkeeping important for S Corps?

—Proper bookkeeping helps track income, expenses, and profits, allowing accurate tax payments and savings. Monthly or quarterly reconciliation and categorization are essential.

What are the additional costs of an S Corp?

—S Corp owners must incur payroll expenses to pay themselves through payroll. There may also be state taxes depending on where the business operates. Consulting with a tax professional is advised.

Do I get taxed on money remaining in the business account?

—No, S Corp owners are taxed based on profits, not on distributed or undistributed money. It is advisable to distribute profits to your personal account for easier access.

00:00This video introduces S Corporations and explains the basics of their tax structure.

04:00S Corp taxes work differently from sole proprietorships, with profits subject to payroll contributions for Social Security and Medicare.

09:59Proper bookkeeping is essential for S Corps to track income, expenses, and profits, ensuring accurate tax payments.

11:46There are additional costs associated with S Corps, including payroll expenses and potential state taxes.

12:21S Corp owners often wonder why they get taxed on money that's still in the business account. This video clears up the misconception.