CPA EXPLAINS: How S Corp Taxes Work

[@NaviMarajCPA]

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[@jaysharif]

Hello Navi, I have sent you an email but never heard back from you so I was wondering how should I contact you or may be I will ask the question here. Can I setup an S corp for my stock brokerage account. The reason being that I do lot of options and generate decent amount of short term capital gain which is taxed at my ordinary income tax. Both I and my wife are W2 high income earners and that puts us at 35 - 37% effective tax rate. I would appreciate if you would respond to my inquiry. If you say yes then let me know how to proceed further.

[@bhushanekbote8508]

Super clear. You have a really good way of explaining things.

[@CIRIHawaiiLLC]

love your videos! I actually filed my 941 thinking the distributions would be a separate phase. time to amend! thanks again!

[@DTSoFLboy]

This is the best video that I’ve seen on this topic, thanks!

[@Narski6]

Massive thank you for the breakdown. You are incredibly good at explaining this to someone new. Will for sure check out your website from here!

[@LadybugLew]

Thanks for your explanations. The video is well paced. ❤

[@GabrielYeager]

Incredibly helpful, thank you!

[@NaviMarajCPA]

Thanks for watching!

[@t32701]

Do you have to take a distribution from the S Corp?

[@godricfamilyfarm]

I'm so glad I subscribed

[@NaviMarajCPA]

Same here 😉

[@sarmadaldulaimi7963]

Great video... very easy to understand.

[@griceldaleon2001]

Navi: terrific video! The manner you explained each step made it incredibly easy to follow along. I do have a question: after my husband became an independent insurance agent in 2024, we filed for an S-Corp (with a business name) but never opened a business bank account. He received all income directly under his name for which we will be expecting a 1099. So my question is the following: are we STILL able to file our taxes as an S-Corp for 2024 or do we have to file as Self-Employed?

[@golfballlife1832]

How does the S-corp work with Foreign Income exclusion Foreign housing exclusion, since I'm moving to Panama. I know I can pay my rental with my s- corp

[@luisguerra1929]

Can I download that spreadsheet? What taxes do I pay on money that stays in the company for the day to day operation? Example, when the net income is $2M and I only take salary $150K, distributions $100K, and the remaining $1,75M stay in the company. What taxes are paid on the $1,75M?

[@AllegroBusinessSolutions]

As long as you can justify the purpose utilizing “retained earnings” (the accounting term for this) to the IRS (for example, saving to buy new equipment), then there is no impact on your tax regarding the funds you didn’t pay out. This gets a bit more complex for C corps…

[@nicolekimbrough5152]

Great video! I've been watching you for awhile. I do have one question that wasn't answered in your video. Does a S-Corp owner have to take all of their net profit as a distribution? How is this amount determined? Look forward to the answer.

[@AllegroBusinessSolutions]

You must take the majority of your compensation in the form of salary (the IRS doesn’t want you completely avoiding FICA). There is no set standard on how much you should get from each type of compensation, but 60/40 (the former being salary) has tended to keep owners in good graces.

[@salpremiers]

What a great video!! 👍🏼

[@NaviMarajCPA]

Glad you liked it!

[@sparkles78]

WHY would distributions be taxes at regular tax brackets ? I thought distributions are taxed at 15% ?

[@AllegroBusinessSolutions]

That would be nice. But you’re already being given a break not being liable to pay FICA on dividends (which is why they normally reap a net advantage to the owner). If you’re in the situation where your ordinary tax on your dividends is exceeding what the FICA liability would be, then it may be time to consider the C corp

[@Narski6]

Excited to see your breakdown for the multimember LLC if it differs much at all from the Sole Proprietor one!

[@AllegroBusinessSolutions]

Any LLC will still be treated as a disregarded entity if or until it elects corporate status.

[@SizzleGrinch]

Im about to sign up. One quock question. How do i update the irs like 2553 form with the appropriate shsreholder information?

[@AllegroBusinessSolutions]

On page 2 of the form, you are given space to list your shareholders

[@Chunsoffun]

Great video! I'm looking forward to the C-Corp one. One question on the S-Corp to make sure I'm understanding everything correctly...If he had put the $56,940 (or whatever amount would be his limit) into a solo 401K then that would lessen his total taxes from $17,207 right? So for example, let's say for simplicity sake that the whole $56,940 was put into a 401K. Then instead of the total tax being $17,207, it would instead be just the $6,120 FICA taxes? Not counting the income taxes he'd have to pay on the $40K salary.

[@NaviMarajCPA]

No, that’s not how it would work. If you established a 401(k), you could defer up to $23,000 (2024) into a Traditional account and so your taxable income would be reduced by $23,000. Additionally, you could do a profit sharing contribution up to 25% of the gross wages you paid yourself. This would be a tax deduction at the S Corp level.

[@ShameenMiller]

Great video.

[@manalosmeanbusiness]

I have a question or if you could make another video 🤷🏽‍♂️ as the owner of a a corp, how do you actually receive the distribution? Is it through your payroll, does your s corp “write a check”, or is as simple as just transferring funds? I look forward to an answer. Thank you for your amazing content!

[@AllegroBusinessSolutions]

Payroll is generally used for processing W2 and 1099 related compensation. For distributions, the owner may simply withdraw the funds however they choose, so long as the transaction is properly recorded as a distribution in your books and so you can receive the proper tax paperwork at the end of the year.

[@dmcrabby]

Hi. Wouldn't taxes still be less, because of the payments of $3060. for tax bill of $8027 on the 1040?

[@kiarabenjamin8704]

Question Navi........if we dont deduct all expenses on the 1120s can we deduct them on the Schedule C?

[@NaviMarajCPA]

I would need to know your exact facts and circumstances to properly answer you. In general, I would say no.

[@kiarabenjamin8704]

Thank you for responding I apologize for the late response.......I have utilities, 1099 NEC contactors, postage stamps, supplies

[@kiarabenjamin8704]

I have my office furniture depreciated under the Schedule C

[@AllegroBusinessSolutions]

No, S corporations do not use Schedule C. Schedule C is used by disregarded entities to report self-employment income. Instead, S corporations file Form 1120-S and issue a Schedule K-1 to their shareholders. The shareholders then report their share of the corporation's income, deductions, and credits on their personal tax returns using Schedule E

[@kiarabenjamin8704]

@AllegroBusinessSolutions thank you so much for that!!! I dont see where to put rent that I pay to a landlord for my commercial space....does that go under other?

[@realrajiv]

love your stuff

[@luzhowe]

We are to pay ourselves reasonable compensation but in our first year if we pay greater amount starting our business and don’t have much to pay ourselves but spend more on real estate signs, etc then what?

[@AllegroBusinessSolutions]

This is a common problem for many new small businesses. If you do not have much cash available to pay yourself, then it would be unreasonable to pay yourself more. The IRS will look at your whole situation in judging the merits of your compensation plan.

[@Bormanb23]

Great video can I still keep my SEP IRA and contribute the maximum of 69,000 (2024) each year if I switch from single owner LLC to S Corp.?

[@AllegroBusinessSolutions]

Yes, you remain qualified to use the SEP

[@AllegroBusinessSolutions]

I ever so gently coax my clients over to the S corp (after I assure them I’ll handle the administrative end)

[@CarlosDaniel-wj5om]

Great audio. What microphone are you using?

[@NaviMarajCPA]

Thanks. It’s the Rode VideoMic NTG.

[@Christ_is_King951]

great video

[@sparkles78]

Tax Savings that you are saying in Scorp are not even apples to apples. in SP you paid ssn mc taxes at 100k , in scorp you paid on 40k, why do you say its a savings on taxes ? also the remaining profit has to be paid tax on in your income bracket.

[@DrywallConcepts]

Help me ! Please

[@sdsd4284]

Greetings Nav i would like to contact you how can i ?

[@NaviMarajCPA]

Contact form on my website is one way to do so.