Updated: Oct 14
Forming a business entity can provide several advantages such as protecting your personal assets, giving more financial visibility and making tax management easier. Let Diamond Head Tax Group OAHU experts aid you in choosing the right type of corporate structure to significantly reduce your yearly tax bill. An S Corporation is one type of structure, a type of corporation that may pass income directly to shareholders along with other credits, deductions and losses. S Corporations do not pay federal corporate taxes. This setup is associated with small businesses with 100 or fewer shareholders.
Diamond Head Tax Group OAHU are experts in helping small and midsize enterprises (SMEs) with Hawaii S Corporation Income Tax Return preparation. Consultant Alan Chu and Diamond Head Tax Group OAHU team also offer business owners comprehensive Honolulu OAHU Financial Planning services.
Hawaii S Corporation Income Tax Return Preparation: An Easy Way for Business Owners to Reduce Tax Bills
Business owners can reduce self-employment/payroll taxes by forming a Limited Liability Company (LLC) but electing to be taxed as an S Corporation. They won't be taxed as a sole proprietorship or partnership.
Employment, Payroll and Self-Employment Taxes
These are levied on the salary of everyone in the business, even for those who are self-employed. For the self-employed they have to pay both the employer and employee portion, which as of 2016 was 15.3%. FICA, Medicare or social security tax are levied on your entire income.
Federal Income Tax
This is paid on any profit your business makes, these are standard and other deductions you can apply to this amount, and the total you end up paying will depend on your tax band. Federal income tax must be paid on your salary along with employment tax.
Paying as an LLC will include paying employment taxes on your entire salary.
Paying as an S Corp, on the other hand, allows you to take money out of the business in two different ways:
As a salary: you will pay employment tax as normal.
As a distribution: you will only need to pay federal income tax for this.
This can result in substantial differences. As an example: as a standard LLC if you take $70,000 out of the business you would pay $10,710 in employment tax.
As an S Corporation if you took out $45,000 as salary, and $25,000 as distributions, you would only pay $6,885 in employment tax, which means you make a saving of $3,825.
Advantages of Forming an LLC That's Taxed as an S Corporation
Forming an LLC and choosing to be taxed as an S Corporation (subchapter S tax election status) is an easy way to reduce tax bills. Many choose this option because the initial step of forming an LLC is convenient for most business owners - many businesses start out as LLCs.
Forming LLCs is convenient but S Corporations pay less in taxes
Business owners who start out as LLCs can take advantage of tax rules by having their LLCs classified as S Corporations for tax purposes
Asking the IRS to consider your LLC as an S Corp is a simple process.
Diamond Head Tax Group OAHU will take care of filing the paperwork and file it with the IRS on your behalf.
Still starting out your business? Choose to form an S Corp directly and let Diamond Head Tax Group OAHU handle the paperwork!
Let Diamond Head Tax Group OAHU help you declare your business. You can establish it as an LLC and have it taxed as an S Corp, or form an S Corporation directly. We will prepare your paperwork so that this will be a convenient process.
Contact us and let our skilled OAHU Tax Experts offer their well-rounded tax advice and tailored tax solutions to help you file accurate tax reports. Diamond Head Tax Group is Honolulu's trusted source of tax filing services serving Waianae, Honolulu, Kapolei, Oahu and surrounding areas.
We are available to assist you with your Tax Needs.
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