Accounting Firm as SCorp?

Do any of you have your accounting firm taxed as an s Corp as the sole owner with a few employees?

I know a handful operated in this manner. Do you have a question as to whether it's allowed or a good idea? Something else?

Generally, I prefer professional service organizations with multiple owners are better off as partnerships, but an s-corp is fine with a single owner.

I didn’t know if it was a good idea or had benefits that a single member LLC as a disregarded entity would have in this particular instance

If you are the sole-owner and have net income in excess of about $50k it would make sense to be taxed as an S-corp. The benefit being that you can split your net income between salary and a distribution. The distribution portion would not be subject to self-employment taxes. Whereas with a single member LLC as a disregarded entity, all of your net income is subject to SE taxes.

That’s what I was thinking as the benefit. My understanding is that wouldn’t work if you had no employees because you couldn’t say any of the profit is due to anyone else. I know it’s a gray area on determining reasonable salary, but is there a general rule you go by as far as what you use to determine that

Do any of you have your accounting firm taxed as an s Corp as the sole owner with a few employees?

I’d have been since day one. I would not put a large schedule C on my 1040 if I could avoid it.

I pay myself above the FICA max so that issue goes away...

That’s what I was thinking as the benefit. My understanding is that wouldn’t work if you had no employees because you couldn’t say any of the profit is due to anyone else. I know it’s a gray area on determining reasonable salary, but is there a general rule you go by as far as what you use to determine that

I'm definitely on the more aggressive side than some people on here. Even without employees, I believe corporate owners are entitled to some distributions as a return on your investment in the corp.

Also, the overwhelming majority that get into trouble with this are those that take no salary or those that get SUPER aggressive with it. I don't really go by a rule of thumb each time, as so much of it depends on the circumstance but I always recommend something that will at least provide some savings on SE tax.

Like I always tell my clients: S Corps are easy to get into, not so easy to get out of. The decision shouldn't be taken lightly and is just as qualitative as it is quantitative. If you aren't willing to run payroll regularly, or pay someone to run payroll, S Corp isn't a good choice.

If you are the sole-owner and have net income in excess of about $50k it would make sense to be taxed as an S-corp.

I used to say the same thing. That S Corps generally start to make sense around $50k of net taxable income. However, in the wake of the TCJA (i.e. QBID), and the fact that we're creating more administrative overhead with an S Corp vs DRE/sole prop, I've pushed that number back materially in my advice to clients.

I'm definitely on the more aggressive side than some people on here. Even without employees, I believe corporate owners are entitled to some distributions as a return on your investment in the corp.

I don't consider that aggressive. When you "go S", you're now an employee of the S Corp. Standard compensation models would dictate that some of the revenue the employee generates goes to his/her compensation, some to his/her benefits, and some as ROI to the owner of the business. That isn't controversial. You just have to settle on what's reasonable comp to the employee for the services provided and the business size.

What’s the problem with getting out of them vs getting out of a single member LLC. If you just sold the assets/goodwill and not the stock wouldn’t they substantially be the same, and then you’d just close the S Corp for tax purposes?

That's just one exit strategy. What happens if you liquidate the corp into a partnership?

Also -- more flexible allocations and different ownership rights now and in the future might be one reason to not rush an S election. Unless you're okay with straight prorata.

If you were working at the firm before you bought out the current owner would it be reasonable to give yourself a raise of maybe 25% and take the rest as a distribution, when the salary would represent about half of your total estimated net income?

What are the differences in ownership rights between an s Corp and a single member llc taxed as a disregarded entity

S Corps have limitations on share class and ownership that may not exist with a partnership or DRE/sole prop.

There are several CPE providers that have courses on the pros and cons of various tax entities. I believe CCH has a pretty in-depth one. It might be beneficial for both you and your clients if you consider taking one.

Yeah I knew about the limited share classes but wasn’t sure what exactly you meant by rights. I do need to brush up on my CPE since I have been out of taxes for a few years and getting back into it now.

Who do you like for online CPE. Based on what I read around here you seem very knowledgeable about everything

That's very nice of you, but I just comment a lot. I'm not that knowledgeable, and am constantly learning.

https://www.cchcpelink.com/search/?keyword=entity

Scroll down to the "self-study" webinars. Those may be worth a look.