Tom's Blog

Tanya asks a really good question about using multiple companies:

Q: I "own" an S corp but also own a business providing bookkeeping, etc. to other businesses. Would having the support company provide the services I would normally provide to the S corp be beneficial in any way?

A: Definitely – in the right circumstance. Remember that all tax planning depends on the facts and circumstances (i.e., what’s going on). Let’s say that your net income from your S corporation is substantial so that you are in a 35% tax bracket. Let’s say your net income from your bookkeeping service is only about $25,000. You could put your bookkeeping service into a C corporation and get some serious tax benefits.

C corporations normally are taxed at 15% on the first $50,000 of net income. So in this case, you would save $10,000 by using a C corporation for your bookkeeping business if you could get $50,000 of income into the company. Since you only have $25,000 of outside income, charging your S corporation for bookkeeping services would increase the tax savings in your C corporation.

One little caveat. Personal service corporations don’t get a 15% tax bracket. Personal service includes accounting. It’s an interesting question whether bookkeeping and accounting are the same thing. If you don’t want to take this risk, you might look at some other services that you could provide to your S corporation to take advantage of the 15% bracket in your C corporation.

For more on how to use C corporations, go to www.provisionwealth.com/products and click on our Tax Strategy Products box. Then, go to our product called, “Making the Most of Your C Corporation.”

Warmest regards,

Tom