Many years ago, when tax time came, I had to write the IRS a $17,000 check. Ouch! It hurt.
I mean, I get the whole taxes thing. I know we have to pay them. But writing that $17,000 check was painful.
Maybe you’ve been there?
After the big check situation, I had a chat with my accountant about my options.
She suggested I make my business an S Corporation—and honestly, I’ve never looked back.
As a legal entity, my business is an LLC (Limited Liability Company). An LLC is a legal entity at the state level. This means my company has an articles of organization registered in the state of Georgia.
As a tax entity, my business is an S Corporation. The S Corp status is simply an election you make with the IRS to be taxed as a corporation with an S election.
How it works
There’s the business: Jill Lynn Design LLC
Then there’s me, the employee: Jill Anderson
I am an employee of my company. I hired myself 🙂
Because I’m an employee, I get a W2 from my company. I pay myself on the last day of every month (for which I use payroll service, Paychex.) I have a set payment amount every month (a salary), but I can change the amount if I need to.
My checks get deposited into a business account. Paychex deducts the necessary state and federal taxes and pays quarterly taxes on my behalf.
When I get a check from a client, I don’t look at it like: Ooooh, here’s $5,000 that Jill Anderson has! Nope. It’s my business’s money—not mine! My paycheck is my personal money. Even though I had a separate business account before, this concept never fully sank in until becoming an S Corp.
As an S Corp, I still have expenses and business deductions. I know approximately how much money I need to make every month to cover my expenses. (My paycheck is also considered an expense.) I keep track of all my revenue and expenses with FreshBooks.
Recently, through a partnership with FreshBooks, I signed up with Bench for bookkeeping as they provide a dedicated team member—a shout out to the wonderful Andry!—to help categorize everything. It’s only been a couple months, and I’ve already learned that I’ve been doing a few things wrong.
For example, I learned that I wasn’t providing the right people 1099s such as my copywriter. I thought that went under professional services. But, really, that’s an independent contractor expense. It’s so nice to have someone holding my hand in the bookkeeping arena now.
Paychex is awesome. I pay them a monthly service fee, which is worth it to me. They also do end-of-year reports for my company. I pay my contractors through Paychex and they send out 1099s for me so I don’t have to scramble. It all gets handled. Plus, there was this one time that the state of Georgia thought I owed them $800 in delinquent taxes due to a clerical error. I submitted the letter to Paychex and they handled the entire thing for me.
When applying for the Paycheck Protection Program (PPP) loan during the Covid-19 pandemic, Paychex saved me a ton of time by having all the resources I needed right there in the reporting section of my account. And because I have payroll, I had access to all the forms the SBA (Small Business Association) needed to approve my PPP loan. Even though this assistance is available to all types of businesses, it was one less thing to worry about while gathering the required documentation.
You might want to consider making an S election with the IRS if:
- You don’t like paying quarterly taxes; you want it be to be handled for you.
- You don’t want to have to deal with any paperwork regarding your taxes except when it’s time to file taxes.
- You don’t want to mingle your business and personal taxes.
- You have trouble keeping your business and personal money separate.
- You have contractors.
So, being an S Corp is my way—and I like it!
Now at tax time (corporate taxes are due March 15 of every year), my accountant provides a Schedule K-1 (Form 1120-S) and Form 600S for the state of Georgia which are reported on my personal income taxes.
Talk to your accountant!
I encourage you to find your way! And, I highly suggest speaking with your accountant.
I didn’t decide to do this on my own; my accountant helped me set it up. Whether this is the right business structure for you, or something else is, talk to your CPA about the options and what makes the most sense—because tax time does not have to be painful! And if you don’t like writing checks for 17k dollars, you shouldn’t have to!
What works best for you as far as business structure?
