Tax Saving Tips For Owner Operators & Family-Run Trucking Businesses - Schedule C vs S-Corp Election

The following excerpt on Schedule C vs S-Corp Election is from "Making The IRS Work In Your Favor" presented by Mark W. Sullivan, EA at the 2018 CMC LIVE hosted by Kevin Rutherford and Let's Truck.

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General rule of thumb

• Net earnings below $65,000 - Schedule C sole-proprietorship
• Net earnings in excess of $65,000 - LLC taxed as an S-Corporation

It is important to note that entity classifications like Limited Liability Company (LLC) and Limited Liability Partnership (LLP) are a function of state law and not federal. For federal purposes the entity type is a tax election.

Schedule C

Pros

• One owner
• No requirement to pay W-2 wages
• Lower tax compliance costs
• No quarterly employment taxes to remit
• No unemployment taxes to pay
• Simpler income tax return
• Qualifies for 20% pass-through deduction applies to net income

Cons

• Owner cannot take non-wages draws not subject to self-employment tax
• All income is subject to self-employment tax
• Higher income tax rates

S-Corporation

Pros

• One owner
• Owner can take non-wage draws not subject to self-employment tax
• Only wages subject to self-employment tax
• Lower income tax rates
• Qualifies for 20% pass-through deduction applies to net income less wages

Cons

• Owner must receive reasonable wages
• Higher tax compliance costs
• Quarterly employment taxes to remit
• Annual unemployment taxes to pay
• Form 1120S

What qualifies as "reasonable wages" has been a matter of debate for more than 100 years. However, in trucking a safe-haven would be to pay yourself a wage equal to that which an employee truck driver would be paid for doing the same job. Hint: Paying yourself $20,000 of wages as an OTR driver clocking 110,000 miles annually and $80,000 of draw would likely be classified as unreasonable.

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Questions? Contact Mark W. Sullivan, EA

About: Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.

Prior to starting a private practice in 1998, Mark was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service

Disclaimer: This article includes general tax information, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case. Please consult with a licensed tax professional.