{"id":9243,"date":"2018-01-26T11:22:26","date_gmt":"2018-01-26T16:22:26","guid":{"rendered":"https:\/\/www2.franchisegator.com\/articles\/?p=9243"},"modified":"2022-08-04T17:20:21","modified_gmt":"2022-08-04T21:20:21","slug":"s-corporation-helps-franchisees-save-taxes-12681","status":"publish","type":"post","link":"https:\/\/www.franchisegator.com\/articles\/s-corporation-helps-franchisees-save-taxes-12681\/","title":{"rendered":"How an S Corporation Saves Franchisees Money"},"content":{"rendered":"

Forming an S Corporation Allows Franchisees to Save on Payroll
\nFICA Taxes<\/h2>\n

Whether you\u2019re buying an existing franchise or taking your own business and turning it into one,
\nfranchisees know that it\u2019s a requirement to incorporate
\na franchise<\/a>. While LLCs and Corporation tend to be the most common entities
\nchosen, S Corporations have also risen in popularity thanks to the wide variety
\nof benefits that this \u201cpass-through\u201d entity offers entrepreneurs. <\/p>\n

If you\u2019re thinking about
\nincorporating as an S Corp, but still want more information about what this
\nlegal structure can do for a franchise, let\u2019s break the ins and outs of this
\nformation down for you.<\/p>\n

What\u2019s an S Corporation?<\/h3>\n

S Corporations begin as C
\nCorporations or LLCs, which makes it a C Corp with an S Corp tax election. That
\nS Corp election tells the federal government to tax the entity as a partnership
\nand not as a corporation, even though S Corp structures tend to operate in the
\nsame manner as corporations. Being taxed as a partnership allows the business
\nto avoid double taxation at the corporate level. <\/p>\n

Instead, S Corps elect to have
\nprofits, losses, deductions, and credits \u201cpass-through\u201d the entity level and taxed
\nonly at the shareholder level. Only the wages of S Corp shareholders, who are
\nalso employees of the business, are subject to employment tax. <\/p>\n

What else do franchises need to know about S Corporations?<\/h3>\n
    \n
  1. Paying yourself a salary matters.<\/strong> Let\u2019s go back to that bit about
    \nthe S Corp shareholders and their wages for a moment. Since wages are subject
    \nto employment tax, it\u2019s important that employees of franchises pay themselves a
    \nsalary or \u201creasonable compensation.\u201d By doing so, this keeps the IRS from reclassifying
    \ncorporate earnings as wages. <\/li>\n
  2. Incorporating as an S Corp provides the franchise with plenty of
    \nbenefits.<\/strong> A few of the most common ones include providing protection for
    \npersonal assets, saving money on FICA payroll taxes, and allowing businesses to
    \ngain credibility with consumers. <\/li>\n
  3. It doesn\u2019t need to be an expensive, or difficult, process.<\/strong> Not
    \nincorporating means your franchise could be subject to legal issues later on or
    \nstruggle to establish credibility with consumers. Once you\u2019ve invested your
    \ninitial franchise fee payment, selected your franchise, reviewed the     Franchise
    \nDisclosure Document<\/a>, and signed the Franchise Agreement, you\u2019ll need to
    \npick a legal structure to incorporate your franchise business. If you\u2019re not
    \nsure which entity to choose, we recommend working with a team of incorporation
    \nexperts for assistance in filing your documents and streamlining the process of
    \nincorporating your franchise.<\/li>\n<\/ol>\n

    Wait, what about the new tax reform law?<\/h3>\n

    If you\u2019ve heard about the Tax
    \nCuts and Jobs Act (TCJA), AKA the new     tax reform law<\/a>
    \nthat gives S Corporations and other pass-through legal entities a 20 percent
    \ndeduction for qualified business income, you might wonder how it will affect filing
    \nyour taxes as an S Corp. The good news is that changes, while scheduled to take
    \neffect in January 2018, will not affect tax returned filed for 2017. For
    \nfranchisees in need of extra filing assistance, I recommend meeting with a tax
    \nprofessional as soon as possible to review and determine which changes apply to
    \nyour specific situation. <\/p>\n","protected":false},"excerpt":{"rendered":"

    Forming an S Corporation Allows Franchisees to Save on Payroll FICA Taxes Whether you\u2019re buying an existing franchise or taking your own business and turning it into one, franchisees know that it\u2019s a requirement to incorporate a franchise. While LLCs and Corporation tend to be the most common entities chosen, S Corporations have also risen … How an S Corporation Saves Franchisees Money<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":9244,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[26,24,29],"tags":[],"class_list":["post-9243","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-for-starters","category-franchise-experts","category-how-do-i"],"yoast_head":"\nHow an S Corporation Saves Franchisees Money - Franchising Blog<\/title>\n<meta name=\"description\" content=\"If you\u2019re a franchisee or potential franchisee thinking about an S Corp, we break down the reasons why this type of corporation is a good move.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.franchisegator.com\/articles\/s-corporation-helps-franchisees-save-taxes-12681\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How an S Corporation Saves Franchisees Money - 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