Author Topic: New S Corp  (Read 423 times)

GUNDERSON

  • 5 O'Clock Shadow
  • *
  • Posts: 46
New S Corp
« on: August 20, 2019, 11:35:32 AM »
Hi folks, thanks for your advice...

After years of being a sole proprietor (for retirement savings I used an IRA and a SEP IRA), my accountant advised that my income is high enough to make the tax benefits of being an S Corp/having a solo 401k worth it. So I'm setting all that up now. A few questions for the group...

-to be clear, solo 401k works the same as a regular 401k when it comes to availability of mega back door Roth conversion?
-any recommendations for the cheapest payroll options, for a one-person business?
-anything else I should be aware of for making this transition?
-anybody recommend a good basic guide to this stuff that I should read?

thanks!

SeattleCPA

  • Handlebar Stache
  • *****
  • Posts: 1513
  • Age: 60
  • Location: Redmond, WA
    • Evergreen Small Business
Re: New S Corp
« Reply #1 on: August 20, 2019, 05:04:39 PM »
Hi folks, thanks for your advice...

After years of being a sole proprietor (for retirement savings I used an IRA and a SEP IRA), my accountant advised that my income is high enough to make the tax benefits of being an S Corp/having a solo 401k worth it. So I'm setting all that up now. A few questions for the group...

-to be clear, solo 401k works the same as a regular 401k when it comes to availability of mega back door Roth conversion?
-any recommendations for the cheapest payroll options, for a one-person business?
-anything else I should be aware of for making this transition?
-anybody recommend a good basic guide to this stuff that I should read?

thanks!

I'd use Gusto for the payroll (unless you're in a really simple state like Washington)

You might find my S corporation FAQ helpful: http://www.scorporationsexplained.com/scorpexplained-faq.htm

These posts about S corporations might also be useful for helping you set your salary and make similar decisions: https://evergreensmallbusiness.com/?s=s+corporation
« Last Edit: August 20, 2019, 05:07:54 PM by SeattleCPA »

Proud Foot

  • Handlebar Stache
  • *****
  • Posts: 1076
Re: New S Corp
« Reply #2 on: August 21, 2019, 12:50:24 PM »
I would second Gusto for being a good service to use. Since you are the only employee have you asked our accountant what they would charge to do the filings?

GUNDERSON

  • 5 O'Clock Shadow
  • *
  • Posts: 46
Re: New S Corp
« Reply #3 on: August 21, 2019, 12:59:12 PM »
Thanks for replying, and for these resources! Weirdly, my accountant is the one who recommended getting a service vs him doing it. And I actually DO live in Washington, @SeattleCPA.... so you would recommend DIYing?

SeattleCPA

  • Handlebar Stache
  • *****
  • Posts: 1513
  • Age: 60
  • Location: Redmond, WA
    • Evergreen Small Business
Re: New S Corp
« Reply #4 on: August 22, 2019, 10:40:41 AM »
Thanks for replying, and for these resources! Weirdly, my accountant is the one who recommended getting a service vs him doing it. And I actually DO live in Washington, @SeattleCPA.... so you would recommend DIYing?

If you operate in Washington state and you are only employee, you can probably avoid state payroll tax returns like unemployment (aka "Employment Security Department") and workers compensation (aka "Labor and Industries").

If this is the case--and it probably is--there's a payroll "hack" you can use. Here it is:
1. At the end of each quarter, file a 941 with IRS that says, basically, the first $10,000 I paid last quarter? Yeah, that was Gunderson's payroll. At this wages level, you'll owe $1530 of SS and MC taxes. But you can remit an amount that "small" with the 941 return.
2. Repeat this for the other three quarters of the year. At year end, this will mean you've paid Gunderson the shareholder-employee $40K in wages and paid all the SS and MC he and the S corp owe on this money.
3. Get the CPA who does your 1120S tax return to do your W-2/W-2 and 940 FUTA return in January. These returns will also show corp paid $40K in wages. The 940 FUTA tax return will require an additional small payment.

The only two rubs with this approach... you won't be able to pay much income tax. (You can't remit more than $2500 with a 941 return.)  So you'll need to make estimated tax payments for the income taxes that Gunderson the employee and Gunderson the shareholder owe... Further, that $2500 limit, means you can't show more than about $16000 a quarter in payroll. But this whole approach can save you $500 -$1000 a year in payroll service fees.

This slightly out of date (older forms) blog post gives more detail:

https://evergreensmallbusiness.com/quick-and-dirty-payroll-for-one-person-s-corps/

We've got an ebook that describes this system and slightly more complicated scenarios: https://evergreensmallbusiness.com/ebooks/five-minute-payroll-ebook/