6 Smart Tax Strategies for S Corporations in 2025
A common question I hear regularly is:
“Should I be an S Corporation?”
My answer:
“It depends.”
There are several factors that determine whether electing S Corporation status is the best option for your business, compared to remaining a Single Member LLC, Partnership, or C Corporation.
S Corporations have specific rules around stock ownership, number of shareholders, and how distributions are handled. At Aligned CPA, we run different scenarios for clients to determine whether an S Corporation election makes sense. Before making this decision on your own, consult a qualified CPA.
If you already operate as an S Corporation, here are six proven strategies that can help reduce your tax burden.
1. Hire Your Child
Your S Corporation can hire your children to work in your business. While payroll taxes apply, your child can earn up to $12,400 without owing federal income tax.
To ensure legitimacy:
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Create a written job description
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Keep timecards and records
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Pay wages via direct deposit into your child’s bank account
Be sure to review your state labor laws for compliance with youth employment rules.
2. Reimburse Your Home Office
An S Corporation can reimburse the owner for home office expenses. These reimbursements are deductible to the corporation and tax-free to the owner.
This must be done through an Accountable Plan to qualify as a non-taxable event. Additionally, if your home is also your administrative office, you may be able to reimburse a larger portion of expenses.
3. Reimburse Vehicle Expenses
If you use your vehicle for business, your company can reimburse you based on the IRS standard mileage rate.
To stay compliant:
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Use an Accountable Plan
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Maintain a mileage log or tracking app
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Identify your home office as your principal place of business, if applicable
This allows business mileage to start from your home, increasing your deductible mileage total.
4. Reduce Shareholder Wages
S Corporation owners must take a reasonable salary, but they are not required to take more than what is necessary.
By reducing your wages to a reasonable level and taking the remainder of profit as distributions, you can reduce payroll tax liability.
To support your salary:
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Reference IRS reasonable compensation factors
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Consider a third-party compensation study for audit protection
We help our clients determine this threshold and avoid IRS scrutiny.
5. Use Bonus Depreciation
Bonus depreciation allows you to write off the full cost of qualifying assets (such as computers or office furniture) in the year of purchase, rather than depreciating over five to seven years.
This strategy is helpful if:
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You expect higher income in the current year
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You anticipate lower income in future years
It’s a valuable tool for tax timing and planning.
6. Work With a CPA to Identify Other Opportunities
Every business has unique tax opportunities. When we work with clients, we explore:
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Fringe benefits
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Retirement contributions
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Accountable plans
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Entity structure optimization
If you’re not reviewing your tax plan annually, you’re likely leaving money on the table.
Ready to Save on Taxes?
Book a free consultation to discover what S Corporation tax strategies may be available to your business. We’ll identify ways to reduce your tax liability and keep more money in your pocket.