Choosing to be taxed as an S Corp does trigger several additional costs.
Payroll Service
S Corp owners are required to receive wages through payroll checks. If the law firm does not have a payroll services in place, a payroll service must be started.
Unemployment Taxes
Once the firm owner is on payroll, their wages are subject to state and federal unemployment taxes. Arizona unemployment rates start at 2% of the first $7,000 of wages for an annual total of $140. Federal unemployment taxes are .6% of the first $7,000 of wages for an annual cost of $42.
Workers Compensation Insurance
Most states allow business owners to opt out of the worker’s compensation insurance that is normally required for all employees.
Income Tax Preparation Costs
Filing an S Corp Tax return is more complex than filing a schedule C.
All additional costs are tax deducible.
All of the above costs are tax deductible. If the owner’s federal and state tax rate is 35%, a marginal $100 of costs reduces the owner’s take home cash by only $65.
