Is an S Corp Worth It? Hard Money Facts and Net Savings

Sales pitch alert! WCG specializes in small businesses with a small number of owners, and often just a one-person show. Did you know that about 68% of all S Corps have only one shareholder, and 92% have one or two? The question most of them ask first is whether an S Corp is worth it after fees.

Common S Corp candidates and current clients for WCG CPAs & Advisors are consultants, attorneys, financial advisors, insurance agents, physicians, surgeons, anesthesiologists, chiropractors, real estate agents, contractors, photographers (the profitable ones), online retailers and good ol’ fashioned widget makers, among several others. We also have several medical groups and financial advisor teams operating multi-entity arrangements, such as the mothership and baby S Corp construct mentioned in another section.

The tax savings of an S corporation is not in dispute. But the tables in the last two sections showed gross savings. What does it cost to have the tax returns, payroll planning, tax projections and consultation done, and what is left after the fees? That is the hard money question, so here are our numbers.

What Does an S Corp Cost? (The Vail Advisory Platform)

Because small businesses are a core competency for us, we built the Vail Advisory Platform (wcginc.com/vail) specifically for S Corp owners. Think of it as the chef’s selection; the right combination of services, executed consistently, by people who have done it a thousand times. The annual fee is $4,920 ($410 monthly), and it includes the following.

Compliance & Preparation-

• Form 1120S: S Corp tax return.
• Form 1040: Individual tax return for one owner, including state, plus rental activities and other investments as applicable.
• Pre-Preparation Meeting: Tax intake meeting ahead of tax return preparation.
• Tax Return Review: Review meeting with your tax team before filing.

Strategic Tax Planning-

• Tax Projections: One annual household tax projection, with a pre-projection meeting in May or June and a review meeting in July or August.
• Payroll Plan: Salary optimization that balances payroll tax savings with Section 199A and IRS compliance, including income tax withholdings sized to your overall tax footprint.
• Payroll Support: Ongoing support as compensation questions come up.
• Mid-Year Tax Strategy Session: One 75-minute tax strategy session, with a written recap.
• Tax Advisory: One strategy computed into your tax projection so you see what it does to your tax in dollars, side by side.
• Routine Support: Three scheduled quick chats for ongoing tax matters.
• End of Year Tax Strategy Session: A second 75-minute session in October or November covering last minute tax moves and next year’s outlook.
• Tax Resolution, Audit Defense: Basic audit support and IRS correspondence.

That is about nine touchpoints with your tax team throughout the year. Year-round planning beats April surprises.

Note: An individual tax return is what the IRS calls Form 1040, and a married couple is one “individual” for this purpose. So, when we say we will prepare your individual tax return, it includes your spouse on a jointly filed tax return. You could prepare your own, but the benefit of WCG preparing both the business and individual tax returns is that we slide things around depending on income limitations and phaseouts.

Custom! Unlike the modern-day new car packages where you must spend $8,000 to get the moonroof, Vail can flex. The list above is the starting point, and upgrades are added only when your situation calls for them. Common ones include-

• Pass-through entity tax (PTET) planning and business entity tax projections
• Rental properties and K-1 investments
• Multi-state filings and foreign income reporting

Here is the full rundown-

wcginc.com/vail

Sidebar: What if you do not need everything in Vail? Our Breck Advisory Platform is $3,720 annually ($310 monthly). It includes both tax returns, the household tax projection, one tax strategy session and the three quick chats, but not the payroll plan, payroll support, Tax Advisory or the end of year session. Breck fits the owner whose salary is already dialed in, or whose business is taxed as a partnership. For most S Corp owners, the payroll plan is where the money is (remember the $1,530 for every $10,000 of unnecessary salary), which is why Vail exists.

What About Payroll and Bookkeeping?

Vail includes your payroll plan, meaning the salary, the withholdings and the schedule, but not the payroll processing itself. That runs through a payroll provider such as Paychex at roughly $900 a year for a one-person S Corp, and we can be your Paychex advocate should you need it. You can also run payroll yourself; go for it! Everyone thinks payroll is a piece of cake; write a check and done. Nope… we see a lot of mistakes, especially the handling of health insurance, since there are special rules for greater than 2% S Corp shareholders. Then again, we don’t mind fixing what was broken.

Bookkeeping is separate too, and optional. If you would rather offload it, our accounting services follow a simple idea; accounting is bookkeeping plus analysis. Here are the starting points-

These assume two accounts (one checking and one credit card) and fewer than 250 transactions a month, and your QuickBooks Online or Xero subscription is separate. A custom quote is available if you have a lot going on, such as point of sale or time billing integrations, accrual accounting, inventory or job costing in construction. More here-

wcginc.com/books (plural, otherwise you get our page on our S Corp and Rental books)

Starting Mid-Year (Prorated Fees)

The Vail annual fee is $4,920 regardless of when you start, since tax return preparation and tax projections are annual events. Whether we onboard you in January or June, we still prepare a full year of tax returns. So, if you start in April, the same annual fee is spread over fewer months, and the monthly amount is higher for the rest of that year before settling to $410 in January.

Starting in August or later, we flip it. You pay a custom fee for what can be delivered in the remaining months (tax projections, a tax strategy session, quick chats and the end of year session), and tax return preparation is invoiced separately during tax season. Same mountain, just a bit less snow the first year. If you are brand new, one-time bootup services such as entity formation, the S Corp election and payroll setup are also invoiced separately.

Break-Even Analysis (Does an S Corp Make Sense?)

Here is the math. Vail is $4,920 and payroll processing is roughly $900, so the all-in cost of running your S Corp is about $5,800 a year. But you would pay for an individual tax return with or without an S Corp (ours starts at $800), so the additional cost is closer to $5,000. If an S corporation saves you 8% to 10% in taxes over the garden-variety LLC, then $5,000 divided by 8% lands at about $60,000 of net business income after expenses. That is our practical break-even point.

And here is what is left after fees, using the gross savings from our first table (40% salary, no health insurance)-

Additional cost is $4,920 for Vail plus $900 for payroll processing, less $800 for the individual tax return you would pay for anyway. Same massive disclaimer as our first savings table.

Remember, gross savings look great at a cocktail party, and net savings buy the cocktails. This is the cocktail money. A lower reasonable salary or health insurance run through the S Corp improves every row. At higher incomes, the salary percentage usually drops, and PTET and Section 199A enter the picture, so think of the bottom rows as the floor and not the ceiling.

More sales pitch! WCG has a handful of clients who are right at the $60,000 break-even point but run an S Corp on our Vail platform anyway. The fee buys tax return preparation, tax projections, strategy sessions and routine consultation, not just payroll tax savings.

You can always find someone to do it for less; we know that. At the same time, we have a vested interest in your success and provide sound tax and business consultation as a part of our service.

Tax Planning and Tax Strategy (Why We Do Not Advertise 137 Tax Strategies)

The S Corp election is one tax strategy, and usually the first one for a business owner. What comes next? A CPA firm or wealth advisor promising 70, 100 or 150 tax strategies sounds impressive, but look closer and much of the list is padding. Donate $100,000 to charity and deduct $37,000. Congratulations, you are out $63,000. Generosity is wonderful, but it is not tax planning.

Other entries are the same concept wearing different hats, or they are built to lose money so you can deduct the loss. A handful of tax strategies move the needle for owner-operated businesses, and beyond the basics they take some combination of three things; money, effort and risk. Simple rule in life- good ideas do not need much explaining, and bad ideas need a sales team.

Tax planning at WCG is a year-round discipline, not a December scramble, and it comes in a few flavors. A tax projection tells you what you will owe. A tax strategy session is 75 minutes on one or several topics with a written recap specific to your situation ($475 on its own, and two are included with Vail). Tax Advisory then computes that strategy into your tax projection so you see it in dollars. We cover most of the common business owner strategies later in this book, and each has a prefabricated session in our library-

• Accountable plans (home office, cell phone, mileage)
• Reasonable shareholder salary
• The company car
• Paying your kids and your spouse
• Multi-entity arrangements
• Pass-through entity tax deduction and the SALT workaround

Here is the full library, including our multi-session Aspen Tax Strategy Series for those with more than one decision on the table-

wcginc.com/strategy

We have also written a webpage on end of year tax moves-

wcginc.com/EOY

And, to see our entire fee structure including our other advisory platforms (transparency)-

wcginc.com/fee