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Level 8

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Mark -

Agree as you said, this is a benefit of S-Corp:

"The ONE exception is that S-corp rules allow business income in excess of "reasonable compensation" to pass through to the owner without  the added social security and medicare tax that attaches to "wages."  So if the business is generating enough CASH to pay a reasonable salary plus taxes, then you can set up the owners on payroll for that reasonable salary and then pass the remaining income to the owners as distributions (subject to income tax, but not SS/Medi)."

IMHO, the benefit above, outweighs the pitfall below, depending on desired preferences:

"There are a few pitfalls to an S-corp, the main one being that all capital and distributions MUST be proportionate to the members' ownership percentages.  This doesn't always suit the owners' desires.  Running payroll is a hassle.  A lot of owners think this is what they want, then they don't do the work, thereby negating the advantage they wanted."  

 

Disagree that running payroll is a hassle, I set mine up in 2015 (on Gusto) auto-pilot and once a year login to add my health insurance paid as imputed income to show on my W-2, which takes maybe 5 minutes and done until next year.  I also record my employer paid SEP/IRA but that is not required, just handy for me to track there. W-2's are automatically submitted to IRS & state. Gusto feeds amounts into my QBO to record those entries.  It can't get much easier than that.

 

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