C-Corp for SSTB Owner

I read about a tax savings strategy for S-Corp Owners that are SSTB's whereby the owner sets up a C-corp that is a professional employment organization. The C-corp renders some sort of service to the S-corp such as bookkeeping, HR, payroll, marketing, etc. S-Corp books the deduction to lower the owners income to qualify for the QBI deduction and C-corp pays tax on the income at the lower 21% rate.

Has anyone recommended this strategy to a client or done it for themselves? It seems extremely sketchy especially if the C-corp only exists for the tax savings and the benefit would be reduced or maybe eliminated when the owner pulls the money from the C-corp.

Thanks in advance!

Where did you read it? Did they have any examples showing the tax savings? As you've already noted, when you pull the money from the c-corp, the tax savings vanish.

I read it in "Tax-Free Wealth" by Tom Wheelwright, a rich dad poor dad book. There was an example but it did not factor in what happens when you take the money out of the c-corp. He said the way to get around it was to loan the money to your S-corp or another entity, but it seems that would just delay the inevitable. Thanks!

What's the taxable income expected at the shareholder personal income tax level? Single filers with income less than $164,901 and married couples with income less than $329,801 don't have an SSTB problem, regardless of the fact that the pass-thru trade or business is classified as an SSTB.

And even if you have taxable income above those thresholds, there is a ratable phase-out over $50K for single filers and $100K for MFJ. So you might have some room to maneuver depending on the taxable income at the shareholder level.

Needs to have some bona fide business and/or legal purpose for the arrangement to be respected for tax.

Also, transactions need to be approximately fair market and arms-length or else we have exposure to Sec 482.

I can't imagine the juice being worth the squeeze, considering all the tax, legal and administrative fees needed to make this arrangement arms-length and keep it that way/administer it.

Gotta love the C corp advocates who don't work the back end. Sooner or later, the owner wants that money!! I can remember a few decades back listening to Jerry Riles (say Rawhles...he was from somewhere way south), may he rest in peace...he was a C corp dog on a bone and I couldn't shake him! I was much younger but already was a proponent of S corps...I just gave up listening to him on C's...there is no way out.

Sooner or later, the owner wants that money!!

Just loan it all out to the shareholder. Then forget about it when the corp liquidates. Isn't that what most clients want to do?

Right? Or owner dies, someone else's problem.

Thank you everyone for the insights, much appreciated!