We model your taxes under each structure, from LLC and partnership to S corp and C corp, so you choose the one that actually saves you money, and set it up correctly from day one.
An S corp can reduce self-employment tax, but it also adds payroll, a separate business return, and tradeoffs that are easy to miss. Whether it pays off depends on your projected income, and more income doesn't always mean more savings.
In Philadelphia, S corps don't owe the Net Profits Tax, so the 60% BIRT credit against it no longer applies, and owner salaries may be subject to Wage Tax. New York City doesn't recognize S corp status at all, so S corps there pay the city's General Corporation Tax. We run these numbers before you elect, not after.
The Social Security wage cap. Once your earnings pass the cap, Social Security tax stops, so the payroll-tax savings from an S corp shrink.
The QBI tradeoff. Your S corp salary doesn't count toward the QBI deduction, so a higher salary can mean a smaller deduction.
Retirement contributions. Your salary determines how much you can contribute to some retirement plans.
S Corporation
A corporation or LLC that elects S status. Profits pass through to your personal return, and as an owner-employee you take a reasonable salary through payroll. Profit above that salary isn't subject to self-employment tax, which is where the savings come from, but your salary doesn't count toward the QBI deduction. Locally, S corps don't owe Philadelphia's Net Profits Tax, so the 60% BIRT credit is lost, and New York City doesn't recognize S status at all.
Partnership
Any business with two or more owners that hasn't elected corporate treatment, including multi-member LLCs. The business files its own return and issues each owner a K-1, profits pass through to the owners, and allocations can be tailored in the partnership agreement. Active owners generally pay self-employment tax on their share. Partnerships owe Philadelphia's Net Profits Tax, with the 60% BIRT credit, and New York City's Unincorporated Business Tax.
Disregarded Entity
A single-member LLC or sole proprietorship. For income tax purposes, the business is part of your personal return, reported on Schedule C, which keeps things simple. All net profit is subject to self-employment tax and is generally eligible for the QBI deduction. In Philadelphia you'll owe BIRT and the Net Profits Tax, with the 60% credit; in New York City, the Unincorporated Business Tax applies.
C Corporation
A separate taxpayer that pays a flat 21% federal tax on its profits, with a second layer of tax when profits are paid out as dividends. It can make sense if you plan to reinvest earnings, raise outside capital, or qualify for the QSBS gain exclusion on a future sale. C corps also owe Pennsylvania's Corporate Net Income Tax and Philadelphia's BIRT, but not the Net Profits Tax.
We model it. Using your projected income, we compare your total tax with and without an S corp, including state and local taxes and the effect on retirement contributions, so the decision is based on your numbers rather than a rule of thumb.
Tax projections comparing your current structure with an S corp, a reasonable compensation analysis, a basic accountable plan, the election filing, and help getting payroll running.
Yes. If your income is too low, if you're past the Social Security wage cap, or if your city doesn't recognize S corps, as in New York City, the added costs can outweigh the savings. That's why we model it before you elect.
Yes. We'll check whether your salary is still reasonable, whether the structure still makes sense for your income, and whether your accountable plan and payroll are set up correctly.
Yes, from a tax perspective. We compare how a sole proprietorship or LLC, partnership, S corp, or C corp would be taxed based on your projected income and plans. For legal questions like liability protection and formation documents, we're happy to coordinate with your attorney.
Book a free consultation. We'll look at your numbers and tell you whether an S corp is likely to save you money.