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November 16, 2020

PROS & CONS: SCHEDULE C vs S-CORP FOR SELF-EMPLOYED TRUCKERS

Mark Sullivan- Per Diem Plus
Mark W. Sullivan, EA
Mark is our transportation industry expert and has over a decade of experience advising clients on IRS accountable per diem programs. 

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.

per diem plus owner operators

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.

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