Addressing the Tax Specialist Shortage for Los Angeles Business Owners

The United States is currently facing a significant shortage of tax specialists. Many reputable tax firms are either refusing new clients or charging exorbitant fees.

Business owners in Los Angeles struggle to find a reliable and responsive tax preparer. Many discover their current tax professionals are unresponsive, fail to proactively seek tax savings, and treat clients impersonally, often leaving many tax questions unanswered. The quality of communication is poor, with clients frequently being passed from one person to another, with no one taking responsibility or being easily reachable.

S-Corp Tax Advisors offers a solution that addresses these issues. We provide attentive and responsive service, using a straightforward document upload system without the need for complicated logins or software. We respond to all tax questions by the next business day and ensure direct communication by answering our phones. Our structured annual process fosters long-term, satisfying relationships with our clients.

Contact us today. We began operations in the summer of 2024 and are ready to support your business needs.

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Advantages and Maintenance Requirements of a California S-Corporation

A California S-Corporation (S-Corp) offers distinct advantages for business owners, but it also comes with specific maintenance requirements. Understanding these can help business owners make informed decisions and ensure compliance with state regulations.

Advantages of a California S-Corp

1. Pass-Through Taxation: One of the primary advantages of an S-Corp is pass-through taxation. This means that the corporation itself does not pay federal income tax. Instead, income, losses, deductions, and credits pass through to the shareholders, who report these items on their personal tax returns. This avoids the double taxation that affects C-Corporations.

2. Limited Liability Protection: Like other corporation types, an S-Corp provides limited liability protection. Shareholders’ personal assets are generally protected from business liabilities and debts, provided corporate formalities are maintained.

3. Potential Tax Savings on Self-Employment Income: S-Corp shareholders can receive both a salary and dividend payments. Only the salary is subject to self-employment tax, which can result in significant tax savings. However, the IRS requires that the salary be "reasonable," based on industry standards and the services provided.

4. Credibility and Perpetual Existence: Operating as an S-Corp can enhance the business's credibility with customers, suppliers, and investors. Additionally, an S-Corp has perpetual existence, meaning the business continues to exist even if the ownership changes.

Maintenance Requirements for a California S-Corp

1. Corporate Formalities: To maintain the benefits of an S-Corp, it is essential to adhere to corporate formalities. This includes holding regular meetings of the board of directors and shareholders, keeping minutes of these meetings, and maintaining detailed financial records.

2. Filing Requirements: An S-Corp must file both state and federal tax returns. This includes IRS Form 1120S for federal taxes and California Form 100S for state taxes. Additionally, the S-Corp must file an annual Statement of Information with the California Secretary of State.

3. Reasonable Compensation: The IRS requires S-Corp shareholders who perform services for the corporation to receive reasonable compensation for their work. This compensation is subject to payroll taxes. Failure to pay a reasonable salary can lead to penalties and increased scrutiny from the IRS.

4. Franchise Tax: California imposes an annual minimum franchise tax on all corporations, including S-Corps. The minimum tax is $800, but it may be higher depending on the corporation’s income. This tax is due even if the corporation operates at a loss.

5. Shareholder Restrictions: S-Corps have restrictions on the number and type of shareholders. An S-Corp can have no more than 100 shareholders, and they must be U.S. citizens or residents. Additionally, an S-Corp can only issue one class of stock, though voting rights can vary.

6. Timely Elections: To qualify as an S-Corp, a corporation must file Form 2553 with the IRS, signed by all shareholders. This election must be made within two months and 15 days of the beginning of the tax year the election is to take effect. Timely filing is crucial to avoid issues with the S-Corp status.

Conclusion

Operating as a California S-Corp offers significant advantages, including pass-through taxation, limited liability protection, and potential tax savings. However, these benefits come with specific maintenance requirements, such as adhering to corporate formalities, filing necessary tax documents, and paying the minimum franchise tax. Understanding these aspects is essential for maximizing the benefits and ensuring compliance with both federal and state regulations. Your IRS Enrolled Agent or CPA can help!