A common question from those who own their own business is How can I avoid self-employment tax? Unless you elect to be an S-Corp LLC your business profits will be subjected to both self-employment taxes (15.3%) and income taxes (10% to 39%) for a potential total of 54% in taxes. Wow! That's close to Belgium's rates.
Can you avoid paying so much in self-employment taxes? Yes, to a large extent but it takes some effort. It requires an election on Form 2553. It requires a corporate tax return on Form 1120S. And it requires you to pay yourself a reasonable salary. These hoops are actually quite painless and the savings can be huge! At $50,000 net profit you could save almost $4,900.
Even 1099-K recipients and those who sell stuff online through eBay, Google, Yahoo!, Stubhub, etc. can benefit. Although you might not consider your side-gig to be an actual business, nonetheless you are being taxed as one. So you can certainly benefit from creating an S-Corp LLC.
An S-Corp is fairly easy to manage, and we can take care of the hassles for you. It's even possible to retroactivate the election to a previous tax year. More dicussion is required. Please read our S-Corp tax article which includes the tax preparation costs (most S-Corp tax returns are $375-$550) at-
Tax Preparation (LLCs, Partnerships, S-Corps, C-Corps)
Most people don’t buy anything without knowing the price ahead of time. So, we offer a narrow fee range for your corporate tax return preparation - you know upfront what you will be charged.
A single-owner (single-member) LLC’s income or loss will flow onto the owner’s Schedule C within their personal tax return. Therefore, a corporate tax return is not required. The fee for this situation is incorporated in the fee for your personal tax return (between $150 to $275). However bookkeeping services in conjunction with the tax preparation is available, and might be required.
A multi-owner (multi-member) LLC requires a corporate tax return (Form 1065) and our base fee is $325. This includes 2 hours of year-end journal entries, generating annual financial statements, creating K-1 statements for each owner / member, and preparing the LLC’s corporate tax return. And Yes, a husband and wife count as two in the eyes of the IRS- sorry.
The base fee for an S-Corp or C-Corp tax return (Form 1120 or 1120S) is $375 which also includes 2 hours of year-end journal entries, generating annual financial statements, etc. An LLC that elects to be treated as an S-Corp for taxation purposes is considered an S-Corp, and therefore the base fee is $375.
Note: If you maintain your own financial records or accounting books, our past experience has suggested that an extra 3-5 hours will be required to properly prepare your corporate tax return. Specifically most errors center on general balance sheet issues, retained earnings and payroll. And these area s of your corporation’s financial records are critical in terms of accuracy.
|Entity||Tax Return||Base Fee||Fee NTE|
|LLC Single-Member||Schedule C||NA||NA|
|LLC Multi-Member||Form 1065||$325||$725|
|LLC Electing S-Corp Status||Form 1120S||$375||$775|
|C-Corp Electing S-Corp Status||Form 1120S||$375||$775|
Base Fee / Fee NTE
If we maintain your accounting books (see Bookkeeping Services below) we guarantee that your corporate tax return will be prepared for either $175 (Form 1065) or $250 (Form 1120 or 1120S). However, if you or a third-party maintains your accounting books, your tax preparation fee will be a not-to-exceed (NTE) fee range. For example, the fee for an S-Corp requiring a Form 1120S who maintains their own accounting books will be a base fee of $375 not to exceed $775.
In rare cases, additional hours might be required to reconstruct financial records- we will provide a firm hours-required quote at $90 per hour.
Knowing that the fee for our service is fixed and will not change is a comfort to our client which we believe in and want to continue with. If you have any questions about our fees, or if you are unsure of your situation please contact us.
Many CPAs will prepare a corporate tax return without a balance sheet- for certain situations a balance sheet is not required by the IRS. However, we feel that it is sound tax preparation practice to create this financial document in conjunction with your corporate tax return regardless. A small business can have a unique way of becoming bigger, and replicating poor accounting practices as you grow can create a much larger problem later- we prefer to lay the groundwork today for an easier transition. This is to your advantage.
Watson CPA Group is not just tax preparers- we are tax consultants, and our firm will take you through the cycles of your personal and business lives. We are a resource that is always available throughout the year. Have a question? Need advice? Received a notice from the IRS at 5:30PM on a Friday? You can contact us anytime, day or night.
Our fee is not just for tax preparation- it offers the continuous peace and mind of knowing that you are not alone in your tax world. LLC taxes, corporate taxes and small business taxes can be intimidating- yet, we are business owners and have rentals properties. We can speak your language, not just in a theoretical sense but in a practical down to earth manner.
We will answer most questions throughout the year free of charge- we view our relationship with you as long-term and understand that things usually work out in the end. Having said that, if your particular situation requires extensive consultation including writing correspondence on your behalf, our fee is $90 per hour. A firm quote will be provided upfront.
Moreover, our goal is to always prepare a comprehensive and accurate tax return but equally important is your understanding of how a tax return 'works'- to the extent necessary, we want you to be comfortable with your tax consequences so together we can successfully plan for your future.
The strongest reason for using a professional bookkeeping service is- you do what you do best with your time; let us do what we do best with our time. QuickBooks is good, but it does not prevent you from entering erroneous or incomplete data. You can quickly spend valuable time trying to make it work.
Also, banks, investors and IRS agents prefer a CPA-prepared set of accounting records. Remember, these groups review financial records every day, and they can quickly spot accidental inconsistencies and errors. Let us help you avoid the bookkeeping pitfalls so you can focus on growing your business.
We offer both bookkeeping and payroll services. Depending on your state, we might kindly ask you to contact a third party payroll provider such as SurePayroll (www.surepayroll.com). Here is a summary of our services and fees-
|Bookkeeping and Payroll||$350||$200|
These fees will cover most situations. However, depending on the number of transactions, accounts and employees, these fees might have to be adjusted.
Reduced Tax Preparation Fees
When we prepare your books throughout the year, our tax preparation fees are reduced to one flat rate fee-
|LLC Multi-Member||Form 1065||$175|
|LLC Electing S-Corp Status||Form 1120S||$250|
|C-Corp Electing S-Corp Status||Form 1120S||$250|
How It Works
With our bookkeeping service, we make all the entries in QuickBooks, perform bank reconciliations, provide preliminary financial statements and give business consulting as necessary.
Most clients give us direct access to their bank accounts (checking and business credit cards) to make the process seamless. We also upload the QuickBooks data file to our Client Portal for your review. Interestingly, several banks now have read-only account logins specifically designed to give accountants direct access yet provide safety and security for the client. However, if this type of access makes you uncomfortable, we will work with you to find a solution that fits for everyone.
The Watson CPA Group are Colorado Springs accountants, and we can also exchange information and discuss your bookkeeping needs through appointments if you are local to the area.