S Corp vs. C Corp Tax Differences EXPLAINED

In this video, I discuss the differences between S Corps and C Corp taxes for small business owners. Whether you're an entrepreneur, business owner, or simply someone curious about the intricacies of company structures, this guide will provide you with valuable insights to make informed decisions.
Understanding the advantages and disadvantages of S Corp and C Corp taxation is crucial for tailoring your business strategy to your needs. I’m here to help you navigate the complex world of business taxes.
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[@swensocm17]

There are several good videos on this subject in other KZbin videos but I really appreciate this one. Just excel, the data, and the explanation. In ~10 minutes provided a lot of value which is refreshing. Thank you.

[@ultraret]

Yea but if you dont take the money out you could keep to grow your business or keep it for slow years to pay the fixed expenses. Also you can control the income you make in your personal taxes. even if its at one year is a C-CORP loss you pay just enuff for obamacare which can be a lot of savings- then carry the CORP loss over for the other years when it makes more money. Also in this example the CAP Gains is zero if you make less than 40K. YOu need to make this video again showing other scenarios where C-CORP makes sense and taking into account multi years with varying income and years C-CORP does not distribute all the income

[@blaczomby3045]

That left over money in the c-Corp you should be able to bring that income down to zero by reinvesting it in to another company or other “expenses” isn’t that what Amazon and alphabet does all the profits from one company owned by the C corp goes up and then redistributed to grow other company’s under the umbrella bringing the C corp income to zero

[@JtotheRizzo]

Using your exact example, what's the threshold of gross revenue where a C-corp would save you more on taxes than a S-corp would?

[@salpremiers]

Great video to compare the 2 entities!!

[@NaviMarajCPA]

Thanks Sal!

[@josephinebardot8403]

Thanks for the new video! I’m looking forward to seeing what other content you post! Always good to learn as much as you can!

[@countthepenny]

Respectfully, I disagree> You are adding the social security and Medicare taxes for Employee which is deducted from the $40K Salary. It is not an additional expense it's baked into the salary. I don't agree with your calculations... You can take distributions up to 40% of the payroll without paying capital gains but there is more to considered regarding what impacts potential capital gains.

[@user-dr6tv9gp2f]

Can't the C Corp take that $60,000 profit and disburse it as a bonus/commission or profit sharing to it's employees and or owners?

[@BradyPuryear]

From what I understand bonuses and commission are taxed as ordinary income so that wouldn’t help you much tax wise and profit sharing is only tax free when the profits are paid into a traditional 401k. If it’s paid out to anyone, it’s income and is subject to all taxes. Not a CPA but I’ve paid bonuses to my employees and even my wife who works at a hospital was taxed on a $30 gift card she got from her work for employee if the month.

[@bfilgate]

Once the C Corp pays the $12,600.00 in tax it will no longer have $60k to issue as dividend. It will only have $47,400.00 to pay as dividend and that taxed at 15% would be $7,110.00 rather than $9,000 in tax paid. That also slightly reduces the state income tax. Is that correct? Also - there is such a large disparity here because the marginal tax rate of the owner is in a lower tax bracket. If their marginal tax rate was 37% could that make the c-corp make more sense? Also - for a c corp is there the same requirement to take the $40k salary? I understood that for a c corp an owner could take a $1 salary and the “reasonably salary” rules only applied to s corps. Lastly you mention the IRS would make you take out retained earnings if you left them in the company. Assuming you keep the funds in the company to grow it (and not bypass tax with a loan to owner) what rules require retained earnings to be issued as dividend?

[@bfilgate]

Once the c corp paid the $12,600 it would not have $60k to issue as dividend - instead it would issue $47,400 as a dividend and tax on that would be $7,110.00 rather than $9k. Is that correct? Also it seems like a c corp might make more sense if the owner was in a higher tax bracket. If their marginal tax rate was 37% could that make the c-corp make more sense? Also - for a c corp is there the same requirement to take the $40k salary? I understood that for a c corp an owner could take a $1 salary and the “reasonably salary” rules only applied to s corps. Lastly you mention the IRS would make you take out retained earnings if you left them in the company. Assuming you keep the funds in the company to grow it (and not bypass tax with a loan to owner) what rules require retained earnings to be issued as dividend?

[@aceace7573]

Did I miss something. The dividend tax is based on distribution s. There isn't 60,000 to.distribute because the corporate tax reduces the available cash

[@onlinexxxxxxx7005]

This video is uderrated, Hope you explain taxation of MMLLC owned by non-residents.

[@AaronMeckler]

This example is a bit off as C corp owners dont have to pay SE tax being an employee so its just ~7.5% employer portion on tje payroll side. If you take flip the example to 60/40 payroll vs dividend and c corp gets 15% rate....and you put in 7.5% savings on payroll + lower marginal rate on dividends+ add in reduced corp tax based on 40k....you have a much narrower gap on net tax owed in c corp. Prob less than 5k on 100k net income. Lets not forget c corps audited less and coming up with a few thousand extra deductions not that hard. My2cents.

[@michaelmorgan6081]

Good job breaking it down

[@kimjack1000]

Are C-Corp dividends distributed to shareholders subject to capital gains tax?

[@jorgeverdu2823]

I read in some sites that you can deduct the SS and Medicare Taxes paid out of the Net Income when paying C-Corp Profit taxes. Is that right? Great video!

[@anthonyreid1435]

I would love that spreadsheet with the formulas

[@andrewhoang4998]

thank you for explaining

[@darrencarter8468]

Love the video. I have a question. Would the $40,000 be considered income or the $100,000? Let's say John wants to contribute to a roth IRA but with the revenue the business earns combined with his wife's income, it would exceed the roth ira income limit but it wouldn't if he had a reasonable salary of $40K? Just want to make sure what is actually counted when contributing to a roth IRA.

[@motivationalmovements8437]

Life saver

[@nngl223]

Thank you 🙏

[@jonblair5470]

Like others state, if you don’t take the money out the c-corp is saving $14,000. So ~$1000 cheaper than the S-corp.

[@alexanderplotnikov1424]

Why John’s compensation doesn’t make company profit lower?

[@jonblair5470]

It does, that’s why it went from “$100k” to “$60k”.

[@BradyPuryear]

Why would the IRS audit you for having “too much” retained earnings?

[@ModernPlebeian1]

Because you have to pay yourself a “reasonable salary”. So find ways to reinvest that money into the business to bring down the tax liability and still be paying yourself a reasonable salary.

[@Steven-vi5nb]

Navi! This topic spoke directly to me. I emailed you about a month ago. Are you taking on new clients? 🤙

[@NaviMarajCPA]

Glad the video helped you! I’m still not taking on new clients though…appreciate you asking. 👍🏼

[@Steven-vi5nb]

@@NaviMarajCPA Darn. I guess I'll ask here. At what point does it make more tax sense to have a c-corp vs s-corp? Hypothetically, would $500k of w-2 income outside of the c-corp + $100k of medical costs paid through the c-corp + no need for any salary from the c-corp, tip the scales in favor of a c-corp? Thanks Navi!

[@ultraret]

@@Steven-vi5nb Team C-CORP bro- just do it The reason is that C-Corporations allow for greater flexibility in terms of separating personal and business expenses. By paying medical costs through the C-Corp, you may be able to deduct those expenses at the corporate level. But C-Corp you still need to pay reasonable compensation thru. Guess you gonna need a CPA to look at your situation.

[@Steven-vi5nb]

@@ultraret c corp + deferred compensation plan might be the best of both worlds.

[@shabirahmad3379]

I don’t know who will listen to these people. They make easy subject complex OMG

[@thereadyprepper488]

You're obviously not telling the whole story or else no one would ever choose a C-corp. Can you talk about the advantages or things you can do with a C-corp that you can't with an LLC?

[@sodavanmean2849]

So rude to just ask a question. The audacity and privilege 😂

[@cucxuong1]

@@sodavanmean2849unbelievable right?

[@user-no4ij8lx6w]

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