Written by Andrew Bertz, CPA
These are the tax questions for business owners I field constantly. There’s a lot to understand, and it’s easily overwhelming. Here’s a simple breakdown of the most common ones you should know.
1. LLC, S-Corp, or C-Corp: Which actually saves me the most?
Under $50K profit: LLC is fine. Between $50K–$400K: S-Corp usually wins by splitting income between salary and distributions, cutting self-employment tax significantly. Above $400K with reinvestment or investors in the picture: C-Corp’s flat 21% rate and QSBS exclusions get interesting fast.
2. What’s a “reasonable salary” for an S-Corp owner?
What you’d pay someone else to do your job. Paying yourself $40K out of a $300K business will get flagged. Most practitioners land at 40–60% of net profit for service businesses. Use data, not wishful thinking.
3. Can I deduct my home office if I run an S-Corp?
Not directly. But your S-Corp can reimburse you through an Accountable Plan for the business-use portion of your home expenses. Set it up, document the square footage, reimburse monthly. Fully deductible by the corp. Fully tax-free to you.
4. What retirement plan gives me the biggest deduction? A Solo 401(k) for most owner-operators. Contribute as employee ($23,000 in 2024, plus $7,500 catch-up if 50+) and as employer (up to 25% of W-2 wages). Total limit: $69,000. High earners close to retirement should look at Defined Benefit plans. Contributions can exceed $275,000/year.
5. Can I use real estate losses to offset my business income? Only if you qualify as a Real Estate Professional. 750+ hours per year in real property trades, and more than 50% of your working time. Otherwise rental losses are passive and can only offset passive income. Worth planning for if real estate is a serious part of your portfolio.
6. Asset sale or stock sale: Which is better when I exit? Buyers want asset sales (stepped-up basis, fresh depreciation). Sellers want stock sales (cleaner capital gain, no recapture, potential QSBS exclusion). This tension lives at the center of every M&A negotiation. Your structure going in determines your leverage going out. This is one of the most consequential tax questions for business owners planning an exit.
7. What is the PTET election and should I make it? Pass-Through Entity Tax elections let your S-Corp or partnership pay state income tax at the entity level and deduct it federally, effectively blowing past the $10K SALT cap for business owners. Available in most states. If you’re in a high-tax state paying significant state income tax, this is almost certainly worth making.
8. Should I gift assets now or let my heirs inherit them? For highly appreciated assets: hold until death. Heirs get a stepped-up basis and owe zero capital gains on the appreciation. For assets likely to grow significantly in the future: gift now, so future appreciation happens outside your estate. That’s the whole calculus in two sentences.
9. What happens when I dissolve my business? More than most people expect. Dissolution triggers a deemed sale of assets, potential depreciation recapture, and possible cancellation-of-debt income. The tax bill surprises people every time. Do not wind down without a CPA in the room.
10. My S-Corp hasn’t been paying me as a W-2 employee: Is that a problem? Yes. A significant one. Owner-employees must be on payroll. Paying yourself via 1099 or skipping salary entirely to avoid payroll taxes is precisely what S-Corp reasonable compensation audits target. If caught, the IRS reclassifies the payments and assesses back taxes plus penalties. Fix it before they find it.
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