If you own a business, having the right business structure can help you lower taxes. An S corporation, or S corp, is one structure that may fit your business. Here's what your accountant wants you to know about adopting this structure and handling your taxes once you do.

What Is It?

An S corp is what's known as a pass-through entity. Unlike some other business structures, S corps pay no federal tax on most types of income. Instead, they pass the funds through to shareholders, who each handle the taxes on their share. To qualify as an S corp, your business needs to be registered as a corporation first, be based in the US, have no more than 100 shareholders, and have only one kind of stock.

How Do Federal Taxes Work?

An S corp pays no taxes on most income. Some types of passive income and investment income are still taxed at the corporate level, but most profits are only taxed after being passed on to shareholders. This means that the money isn't taxed twice as it would be under other business models. Also, the individual shareholders don't pay self-employment tax on their share of profits. However, shareholders working for the business must be paid a reasonable salary, and that salary is taxed as usual.

What About State Taxes?

Whether you pay state taxes as an S corp depends on what state you're in. Texas has a franchise tax which applies to S corps and several other business models. However, this state also eliminates personal state taxes on your share of the business's profits.

How Can an Accountant Help?

First, an accountant can help you determine what's considered a reasonable salary for each shareholder working in the company. This will protect your company's S corp status, so the business does not become responsible for federal taxes on earnings. An accountant can also give you tax help; while your corporation may not owe anything, you still need to file with the IRS each year. They can help with tax planning to determine the best way for your company to save money. Finally, they can help with the transition from your current business model to an S corp.

If you want an accountant's help with your company's taxes, choose Young Hoy & Burnett CPA in Texarkana, TX. Serving Bowie County and the Four States area for over 40 years, they are a full-service accounting agency with experienced staff members who can help you with your business's finances from beginning to end. Call (903) 794-2211 or visit their website to learn more about their services.