S Corps for Law Firms – S Corp Costs

Choosing to be taxed as an S Corp does trigger several additional costs.

Payroll Service

S Corp owners are required to receive wages through payroll checks.  If the law firm does not have a payroll services in place, a payroll service must be started.

Unemployment Taxes

Once the firm owner is on payroll, their wages are subject to state and federal unemployment taxes.  Arizona unemployment rates start at 2% of the first $7,000 of wages for an annual total of $140.  Federal unemployment taxes are .6% of the first $7,000 of wages for an annual cost of $42.

Workers Compensation Insurance

Most states allow business owners to opt out of the worker’s compensation insurance that is normally required for all employees.

Income Tax Preparation Costs

Filing an S Corp Tax return is more complex than filing a schedule C.

All additional costs are tax deducible.

All of the above costs are tax deductible.  If the owner’s federal and state tax rate is 35%, a marginal $100 of costs reduces the owner’s take home cash by only $65.