6 of the Best Tax Deductions for S-Corps Used by the Pros
John F. Dennehy Jr., CPA, PC

6 of the Best Tax Deductions for S-Corps Used by the Pros

As the owner of a business, you may be eligible for the best tax deductions for S Corps. The S corporation is a unique creature of federal tax law wherein you initially form an LLC or corporation and then elect taxation of an S Corp. While your legal entity will remain an LLC or corporation, you’ll be taxed under the provisions as an S corporation. To do so, you must use the S Corporation Form 2553 to make the election.

For federal tax purposes, your S Corp is a pass-through entity, which means the corporations income, tax credit items, and deductions are passed through to you onto shareholders through a Schedule K-1. For many business owners, S Corps represent the best of both worlds: liability protection with personal taxation. Continue reading for a few alternative tax planning strategies for businesses looking for the best tax deductions for S Corps.

What Are the Best Tax Deductions for S-Corps: Business Expense

Generally, corporations are allowed to write off any legitimate business expenses and take allowances for the general wear and tear as well as the general obsolescence of assets. In addition, S corporations are not required to claim these deductions on a Schedule A.

This means the deductions are not subject to the 2% of adjusted gross income threshold as other personal itemized deductions are. Instead, you can use the best tax deductions for S corporations prior to it ever hitting your personal income.

The Best Tax Deductions for S-Corps: Section 179

Typically, larger capital purchases like vehicles and equipment can only be gradually deducted over the life of the vehicle or equipment. However, Section 179 creates a highly attractive exception to this rule.

Under Section 179, your small business may be able to effectively deduct up to $500,000 of vehicle or equipment purchases each year in the first year the business equipment was put into service. This massive perk is one of the best tax deductions for S-Corps and can be used for new as well as used purchases. Additionally, you can claim Section 179 for software purchases.

The Best Tax Deductions for S-Corps: Depreciation

The IRS fully understands your facilities and capital equipment must be renovated, updated, or replaced altogether from time to time. Even the newest buildings will eventually fall apart and have to be replaced. As your property grows older, starts to wear out, or gets closer to obsolescence, your S Corp may be eligible to take a deduction to accurately reflect the gradual loss in property value.

The Best Tax Deductions for S-Corporations: State & Local Taxes, Fees & Advice

Your local and state income taxes, excise taxes, sales taxes, and incurred use taxes can typically qualify as business expenses, which makes them tax deductible. In addition, the tax preparation fees for your corporation and yourself may be tax-deductible business expenses. Unfortunately, your personal legal fees are typically not tax deductible, but legal fees for the benefit of the corporation are.

The Best Tax Deductions for S-Corps: Employee Benefits and Wages

Did you know S-Corps may be eligible to deduct the wages paid to employees and employee benefits? This can be done by listing them on Form 1120-S — S-Corp tax return — as expenses. Make sure you include any Medicare and Social Security taxes you pay.

You can also deduct the employer’s portion of these taxes on the salary you receive if you are an employee/shareholder of the corporation. However, distributions or dividends your corporation issues to shareholders are not eligible.

Bonus S-Corp Tax Strategy: Renting Your Home

Since your S-Corp is an entirely separate entity, it can have meetings anywhere it likes, such as your home. Each year, you can rent out your home for a maximum of 14 days to the S-Corp without having to report the income. Best of all, your S-Corp can deduct the business expense. Let’s look at an example of how this tax deduction could work.

Alex owns a Gym and files as an S Corp. He has a team of 15 agents. Throughout the year, Alex hosts monthly meetings at his home to give his employees updates on the latest strategies. Alex has compared competitive bids for similar places and derived $1,000 was a reasonable and fair expense for renting his home.

Alex can charge the company $12,000 annually for renting his home. Because it would be a business expense, the S-Corp could write the $12,000 off. And because the rental is less than 14 days, Alex’s personal income from the rental would be tax-free.

Contact Dennehy Jr., CPA, PC for the Best Tax Deductions for S-Corps

John F. Dennehy Jr. CPA, PC is a full service accounting firm offering a wide range of services. We specialize in helping S-Corps lower their tax liability and streamline their accounting.

Contact John F. Dennehy Jr. CPA, PC today for the best tax deductions for S-Corps.

About the Author John F. Dennehy Jr., CPA, PC

We at John F. Dennehy CPA are a team of certified public accountants who service clients throughout Long Island. The services that we provide are comprehensive, and we can resolve multiple accounting needs for a client.

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