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S Corps for Law Firms – S Corp Costs

Navigating the financial implications of choosing an S Corp structure for your law firm involves understanding additional costs ranging from payroll services to tax preparation.
S Corps for Law Firms – S Corp Costs
Law Firm Operations
Written by
Paul W Carlson, CPA
Published on
Oct 20, 2019

This blog post provides a breakdown of these extra expenditures, such as unemployment taxes and workers' compensation insurance, while emphasizing their tax-deductible nature. Gain a clearer picture of what opting for an S Corp means for your law firm's bottom line and make a more informed decision.

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.