Hey guys, happy Tuesday. Can you believe that 2021 is almost over? So let’s hope 2022 is better, but while we still have a little time left this year, I wanted to ensure we got you some timely year-end planning-type tax tips. So we’re going to do one from my S Corp owners because I know there’s a lot of you out there, and many people don’t like to listen about running payroll. So that’s what we’re going to talk about today. So let’s get it started.
Hey, I’m Bette Hochberger, CPA, CGMA, and today we will talk about why it’s so essential to run payroll when you are an S corporation owner. Okay. So you have to run payroll when you’re an S corporation owner. The IRS, the government, knows that a lot of people create S corporations because they function similar to, like an LLC. Or a partnership where you get that flow-through entity, and you get the tax savings of not being a regular C corporation where the taxes are a lot higher. And the other cool thing is with the S corporation; you’re not paying self-employment tax on all that income because if you were just an LLC or you were a sole proprietor or just a regular partner, you’d be paying self-employment tax on all of your net income, and that could be a little bit painful.
So, the result of that is because the government knows you’re not paying money into that self-employment tax; you do need to run payroll so that you can get those payroll taxes paid in. So, payroll tax and self-employment tax is kind of the same thing.
So when you’re an S corporation owner, I don’t care how much you’re making, how little you’re making, whatever the IRS can come in and make your life a living hell if you’re not running payroll. So run payroll, please. Of course, there are other reasons you want to do it besides the fact that you can be inviting an IRS audit, which nobody wants. Still, if you’re looking for some other tax planning and you’re an S corporation owner, you might be looking at some retirement accounts, and a lot of times, you need to be on the payroll for those retirement account contributions to happen. So if it’s not enough that the IRS wants you to run payroll, do it so that you can put away money for your future and lower your taxes at the same time, which is fantastic.
If you aren’t set up already to run payroll, it’s not the fastest process. You do need to register with your state. So tick tock because the sooner, the better, because we’re already a week into December.
So that’s my big tip for today. If you are an S Corporation owner, run your payroll! Thanks.