February 7, 2023 | By Jessica Goedtel, CFP®
Let’s play two truths and a lie.
“You need an S-Corp for your OnlyFans. It’ll save you money on taxes, plus you’ll get to deduct lots of expenses. It’s easy!”
Truth: An S-Corp may save you money on taxes.
Profits for S-Corps aren’t subject to self-employment taxes. You may have seen these before on a paycheck. Same taxes, but this time they are doubled because you’re paying both the employer and the employee portions. Here’s a breakdown of the components:
That’s just on the profits. You will still have to pay yourself a salary that’s reasonable, which will be subject to those taxes. More on that in a minute.
Truth: An S-Corp will allow you to deduct lots of expenses.
I’m cheating a little here as this is only partially true. You can deduct expenses that are ordinary & necessary to your business. Having an S-Corp does not give you carte blanche to deduct personal expenses or even all your business expenses. Many business expenses have extra rules on when they are deductible (such as travel, clothing, and home office expenses).
You also don’t need an S-Corp to deduct business expenses. You don’t even need an LLC. If you’re operating with an intent to profit, you’re eligible to deduct certain business expenses.
Lie: Running an S-Corp is easy.
If it sounds too good to be true, it probably is. An S-Corp election may be able to save you in taxes, but there are challenges.
The bottom line. Making an S-Corp election isn’t a magic bullet to avoid taxes. The decision requires careful consideration of your unique business and situation.
Need help deciding if this is the right move for you? I’m here to help. Schedule a call with me and find out how a financial planning partner can take your business to the next level.
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