Is an Idaho S Corporation High-Earner Preferred?
Yes. As long as a reasonable wage has been met first, all other profits from an Idaho S-Corporation can be disbursed to owners/shareholders as ordinary income. In addition, salaries paid to an owner of an Idaho S-Corporation is treated as any other employee wage and is deductible.
However, paying fringe benefits in an Idaho S-Corporation is not a viable upside to high-earners who are looking to reduce taxes. In this entity, all fringe benefits are considered taxable wages. Structuring as an Idaho C-Corporation is the only way to take tax-free fringe benefits that are business deductions.
What this means for high earners: You and your Idaho business will split the payroll taxes on your reasonable wage. After that, left-over profits will be taxed as ordinary income without the additional 15.3% for self-employment taxes.
Is an Idaho S Corporation Investor Preferred?
Yes. Investors like to minimize their risk. Only Idaho corporations provide a true liability shield and can issue stock. Keep in mind that an Idaho S-Corporation can only issue one class of stock and are unable to offer different levels of voting rights to potential shareholders/investors.
In addition, investors can potentially get a disbursement in the form of a K-1 for taxable income in which the money was never received. This is a very common occurrence and may hinder your Idaho S-Corporation’s potential investors.
Why would shareholders get a K-1 for money they never received, and why would they have to pay income taxes on it?
Since an Idaho S-Corporation is still a pass-through entity, all profits on the books will trigger a total payout at the end of the year. However, this doesn’t mean the profits are free to suck dry. Many times, extra profits are being used for operating costs, payrolls, expansion, and so on. It may also be an internal issue concerning bad bookkeeping and accounting systems.
Are S Corporation Profits are Paid using Dividends?
No. After a reasonable wage has been met, all other profits will be disbursed to Idaho S Corporation owners/shareholders through a K-1 form. This money will not be subject to self-employment taxes but taxed as ordinary income on owners/shareholders’ tax returns. There are no dividend options available.
Are Idaho S Corporation Profits Paid using Disbursements?
Yes. After a reasonable wage has been met, all other profits will be disbursed to owners/shareholders through a K-1 form. This disbursement is not subject to Idaho self-employment taxes but taxed as ordinary income on Idaho owners/shareholders’ tax return.