Question: Given the recent passing of the stimulus law (CAA 2021) permitting a business to deduct payroll expenses paid with Paycheck Protection Program (PPP) funds, how does an S corporation or Partnership basis negatively impact this? I’m hearing that even though the law allows the deduction, some businesses will have suspended losses due to PPP funds. Which is true? Can a business deduct losses from PPP payroll or not?
The Ultimate Business Upgrade: Turning Your Partnership into an S Corp Without the Tax Bite
Dominique Molina, CPA MST CTS
Looking to cut down on self-employment taxes on your partnership income? Converting your partnership into an S corporation might be the answer. If you currently run your business as a partnership or an LLC taxed as a partnership, you’re probably familiar with the sting of self-employment taxes. Unlike shareholder-employees of an S corporation, who only pay Social Security and Medicare taxes on their salaries, partners typically get hit with self-employment taxes on their entire share of the business’s net income. That can add up fast. By transitioning to an S corporation, you can restructure how you take your income—splitting it between salary and profit distributions. The big advantage? Those profit distributions are not subject to self-employment tax, potentially saving you thousands each year. So, if reducing your tax burden sounds appealing, let’s break down how a tax-free Section 351 incorporation works and what you need to know before making the move.
