Tax Strategies To Consider For An S Corporation

A common question I get on a regular basis is “Should I be an S Corporation”?

My answer: “It depends”

There are several factors that come into play as an S Corporation versus a Single Member LLC, Partnership, or C Corporation.

As an S Corporation there are restrictions on stock, who can own the stock, number of shareholders, how distributions are paid, among other attributes that are specific to S Corporations. When working with clients we will run different scenarios to determine if electing S status is the best option. So before you elect S status on your own, meet with a CPA first.

If you already are an S Corporation, here’s multiple ways for you to save money in taxes:

Employ Your Child

Your S Corporation can hire your children to work in your business.  Although you will have to pay payroll taxes on the wages, your child can earn up to $12,400 without paying federal income taxes.

It’s important to note that your child must actually work in the business for this to be legitimate. We recommend having a job description, timecards, and a paycheck deposited into the child’s bank account.

But first, review your state labor laws to make sure you stay in compliance.

Reimbursement Of Home Office

An S Corporation can reimburse the owner for home-office expenses.  The deduction is deductible for the S Corporation and tax-free to the owner.

This reimbursement should be under an Accountable Plan in order to be tax-free.  If there is a second office location, this should also be the office in which you make administrative and management decisions.

Reimbursement Of Vehicle Expenses

You can be reimbursed vehicle mileage for any business mileage you may have. This also should be under an Accountable Plan (documenting your mileage).  And if your home-office is your principal place of business, your business mileage starts at home, which can really start to add up.

Reduce Shareholder Wages

You may be able cut payroll taxes by reducing your salary and taking the rest as distributions.

As an S Corporation you are required to pay an officer salary.  This salary must be considered reasonable compensation. However, you are not required to pay more than what is deemed necessary.  It’s important to not drop below the reasonable compensation threshold.

There are rules and tests you can work through to determine reasonable compensation, but if you want an audit proof method you may have to spend some money and get a third party to determine that amount. This is something we can do for our clients.

Bonus Depreciation

This is an accelerated depreciation tool.  Typically you would depreciate an asset over its useful life.  For computers, copiers, and office furniture that would be 5-7 years.  By using bonus depreciation you would take the full deduction all in year one instead of spread out over time.

This is a great tool if you have high income in one year but you know your income will be lower in the next couple of years.

These are proven tax strategies that can help you save money and cut taxes. 

If you would like to talk specifically about the money you may be leaving on the table, book a free consultation here and we’ll figure out what tax strategies you should be implementing in your business.


I help solo and small law firms, and other service professionals, by providing accounting, tax preparation and proactive tax planning services.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease.