Most people think about their business structure when they first start their company.
Do I want to be a sole proprietorship?
Or do I want to be a partnership? What about an LLC or C-Corp?
But what about an S-Corp? Should you form an S Corporation?
Let’s take a look at the Executive Branch’s personal tax strategies to consider the implications of choosing to S-Corp or not.
Biden’s S-Corp
During the 2020 Presidential Campaign, Joe Biden released both his and Kamala Harris’ tax returns on his website.
On President Biden’s return, the report showed passthrough income from an S-Corporation called CelticCapri, which he created after leaving office in 2016 for writing engagements.
With motivational speaking fees that paid him $112k last year alone, this savvy move helped reduce how much self employment taxes he owed over time – smart decision, Joe.
Harris’ Schedule C
Surprisingly, however, Harris’ return reported a Schedule C (Schedule C is for sole proprietorships and LLCs, not S Corps) for her writing business.
With a net profit of almost $265,000, most would have expected her writing business to be taxed as an S-Corporation to minimize self-employment tax.
However, there might be a few reasons as to why she preferred not to make the S election:
- Her wages from the Senate exceeded the maximum amount of earnings subject to Social Security Tax. So, her business income was only subject to the Medicare portion (2.9% plus the Additional Medicare Tax) instead of the full 15.3% self-employment tax.
- Although minimal, she avoids the $800 California franchise tax (assuming her business is a sole proprietorship and not an LLC).
- 2019 was the first time she released a book in ten years. She might have postponed the S election until she starts writing enough to pay herself a reasonable salary annually.
Conclusion
Making the S election requires the consideration of multiple factors, not just tax savings.
As an attorney who is married to an attorney, we can take the position that Kamala considered all factors and the S election for her writing business was not the beneficial decision in the overall scheme of things.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.