Author Topic: Questions on tax bill changes and s corp  (Read 768 times)

mousebandit

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Questions on tax bill changes and s corp
« on: December 09, 2017, 01:16:55 AM »
I was planning on setting up our business in Jan 2018, as an LLC S corp.  I intend to fund the business, and draw a W2 salary.  While I'm very hopeful there will profits the first year, it's likely that there will not, especially after my salary, for at least one year.  This will be an active real estate business, doing re flips. 

1.  Will the proposed Section 199a deduction be an above the line deduction?  I thought so, but then wasn't sure after reading about the limitation based on taxable income. 

2.  How are s corp losses handled in Pass through and section 199a?  specifically, if the corporation pays owner w2 salary (and payroll taxes, benefits, etc), resulting in net loss, is there any above the line 1040 deduction for that loss, to potentially offset against owner or spouses other w2 income? 

3.  I've had schedule C business before, but never took draws as W2 payroll.  Are there differences in payroll rules or procedures when the employee is the owner? 

Those are questions I've thought of so far. 

SeattleCPA

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Re: Questions on tax bill changes and s corp
« Reply #1 on: December 12, 2017, 07:34:35 AM »
I was planning on setting up our business in Jan 2018, as an LLC S corp.  I intend to fund the business, and draw a W2 salary.  While I'm very hopeful there will profits the first year, it's likely that there will not, especially after my salary, for at least one year.  This will be an active real estate business, doing re flips. 

1.  Will the proposed Section 199a deduction be an above the line deduction?  I thought so, but then wasn't sure after reading about the limitation based on taxable income. 

2.  How are s corp losses handled in Pass through and section 199a?  specifically, if the corporation pays owner w2 salary (and payroll taxes, benefits, etc), resulting in net loss, is there any above the line 1040 deduction for that loss, to potentially offset against owner or spouses other w2 income? 

3.  I've had schedule C business before, but never took draws as W2 payroll.  Are there differences in payroll rules or procedures when the employee is the owner? 

Those are questions I've thought of so far.

You shouldn't rush the S election for your new LLC. You don't get any benefit from the S corporation if the business is losing money or even if it's (after your salary) only making a little bit.

Note: This discussion might help you a bit: https://evergreensmallbusiness.com/should-you-use-an-s-corporation-for-a-sideline-or-part-time-business/

Regarding the Sec. 199A deduction, for most taxpayers (if the new deduction actually becomes law!) the deduction equals 23% of lesser of your qualified business income (basically the S corp profits) or 23% of your taxable income. If your business loses money, you don't get the Sec. 199A deduction... and the loss in year 1 carries over into future. This means you don't need to worry about deduction yet.

BTW, I love S corporations... but you don't need an S corporation to get the Sec. 199A deduction. And note that while the S corporation itself will (should) save you payroll taxes, the Sec. 199A deduction actually gets limited by the S election because the W-2 wages paid to a shareholder don't get used in the "23% of qualified business income" calculation.

Note: This might also help: https://evergreensmallbusiness.com/sec-199a-qualified-business-income-deduction/#comment-4846