Converting Your LLC to an S-Corp Can Make a Difference
06 Aug 2024 - Tony Naccarato
Business
Are you a business owner looking to save money on taxes? Converting your LLC to an S-Corp could be a game-changer. Let's explore why this tax strategy can be beneficial and discover three additional steps to maximize your savings.
Meet John, a successful business owner who has been running his side hustle since 2020. This year, he will make over $100,000 for the first time. As the sole owner with no employees, John also holds a full-time W2 job. Recently, his CPA advised him to file taxes as an S-Corp but didn't explain why.
Here are some points to consider.
1. Convert Your LLC to an S-Corp
Converting to an S-Corp can save you money on self-employment taxes. When you pay yourself a reasonable salary, only that salary is subject to payroll taxes. The rest of your profits are not, which means an immediate savings of 15.3% on retained profits. For John, this meant keeping more of his hard-earned money.
2. Employ Your Spouse
Another smart move is to employ your spouse. This can reduce your overall tax bill in a couple of ways. First, you get a tax deduction for their salary. Second, it helps keep more money within the family. John employed his wife, which allowed him to write off more expenses like travel, meals, and home office costs. This strategy significantly lowered their taxable income.
3. Maximize Your Deductions
Deductions are your best friend when it comes to saving on taxes. By converting to an S-Corp and employing his wife, John maximized his deductions. They could now include more business-related expenses that weren't deductible before, including more travel, meals, and home office expenses, all of which added up to significant savings.
4. Enhance Your Retirement Planning
Retirement planning is another crucial area where you can save big. John and his wife took full advantage of their retirement plans. They maximized their Solo 401(k) contributions, allowing them to defer up to $69,000 for 2024. On top of that, they also contributed to their W2 401(k)s, adding another $23,000 for 2024. This combined total of $92,000 in deferred taxes resulted in a $28,000 tax savings for the year.
Converting your LLC to an S-Corp and employing these additional strategies can save you thousands of dollars each year. Here's a quick summary of the benefits:
- LLC to S-Corp Conversion: Save on self-employment taxes.
- Employ Your Spouse: Reduce taxable income and keep money in the family.
- Maximize Deductions: Write off more business expenses.
- Enhance Retirement Planning: Defer taxes and save for the future.
Take control of your tax planning today and see the difference it can make. Consult with a tax professional to find out how these strategies can work for you. With these proven methods, you can start saving more and planning smarter.
Managing multiple business entities and keeping track of all your assets can be challenging. This is where Main Street Pulse comes in. Our platform helps you organize and keep track of your S-Corp and the assets owned by it. With Main Street Pulse, you can visualize your business structure, monitor important dates, and manage all your documents in one place. Take the next step in efficient tax planning and asset management with Main Street Pulse. Start organizing and tracking your wealth today!
Disclaimer: Main Street Pulse does not endorse or provide financial, legal, or tax advice. The information provided is for general informational purposes only and should not be considered as professional advice. We encourage you to consult with a licensed professional for advice specific to your individual circumstances.