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If you own a business, here’s an idea to save taxes. To qualify, (1) you have to own a business that is taxed as an S Corp, and (2) you have to “actively participate” in the business.
This example shows how the savings works: Assume your business earns $1 million. Instead of drawing a $1 million salary, you draw a $250,000 salary and a $750,000 S Corp distribution. The $750,000 S Corp distribution avoids the 3.8% Obamacare tax. Each year, you save $28,500.
Operating as an S Corp is the only way to avoid this tax. A partnership or an LLC cannot avoid this tax. If you are not currently taxed as an S Corp, you should consider converting to S Corp status. There are a number of things to consider in making this decision.
IF YOU ARE CURRENTLY A C CORP AND YOU WANT THIS TO BE EFFECTIVE IN 2013, THE S CORP ELECTION MUST BE MADE BY MARCH 15, 2013.
If you are not currently a corporation, you can elect this treatment at any time. Please contact us to explore how this idea may apply to you. |
