Running an S-Corporation can be one of the most tax-efficient ways to operate your business—but only if you structure things correctly. As a local San Diego County CPA working closely with construction companies, trades, real estate groups, restaurants, and service-based businesses, I see the same mistakes (and opportunities) every year.
If you want to reduce taxes, stay compliant, and keep more of what you earn, here are the top tax tips every S-Corp owner should know.
1. Pay Yourself a “Reasonable Salary” (And Not a Dollar Less)
Optimizing salary vs. distributions is the #1 tax benefit of an S-Corp.
But it’s also the #1 area the IRS examines.
A “reasonable salary” depends on:
- Your role (owner-operator vs. passive owner)
- Industry standards in San Diego County
- Experience and skill level
- Time spent working in the business
Pro Tip:
Most owner-operators fall somewhere between 30%–60% of net business profit as W-2 wages, with the rest paid as distributions.
Set your salary by February/March each year, and revisit if revenue spikes.
2. Maximize Retirement Contributions
One of the biggest S-Corp tax advantages is the ability to stack tax-advantaged retirement plans.
Common options for S-Corp owners:
- Solo 401(k) – employee + employer contributions
- SEP IRA – up to 25% of W-2 wages
- Cash Balance / Defined Benefit Plan – great for high-income owners
Deadlines:
- Employee deferrals: 12/31
- Employer contributions: tax filing deadline + extension
For many of my San Diego construction & trade clients, the Solo 401(k) gives the highest deduction while keeping admin simple.
3. Track All Owner Health Insurance Premiums
S-Corps can deduct owner health insurance—but only when it’s structured properly.
To deduct premiums:
- The business must pay or reimburse the premiums.
- They must be added to your W-2 (but not subject to payroll tax).
- You claim the deduction on your personal return.
This is one of the most missed deductions I fix when onboarding new clients.
4. Use an Accountable Reimbursement Plan
If you personally pay for business expenses—tools, mileage, home office utilities, cell phone—an accountable plan lets the S-Corp reimburse you tax-free.
Benefits:
- Reduces your taxable income
- Keeps expenses compliant
- Eliminates messy “shareholder distribution adjustments”
Construction companies and real estate firms especially benefit from mileage and home office reimbursements.
5. Deduct the Home Office the Right Way
As an S-Corp owner, you can’t deduct a home office directly on your business return.
Instead, use the accountable plan:
- Calculate home office percentage
- Reimburse yourself from the corporation
- Deduct it as an office expense
- Avoid the Schedule A limitation
This strategy applies to many clients working from Carlsbad, Encinitas, Oceanside, and San Diego home offices.
6. Keep Payroll Clean & Consistent
Payroll errors create year-end headaches, especially with owner payroll.
Best practices:
- Run payroll on a fixed schedule (twice monthly or monthly)
- Include health insurance and retirement info correctly
- Don’t mix personal expenses into payroll or distributions
- Document shareholder distributions quarterly
If you’re using Gusto, QuickBooks Payroll, or JustWorks, make sure your setup is correct from January 1.
7. Plan Estimated Taxes Early
Even with an S-Corp, most owners still owe estimated taxes for:
- Federal
- California (FTB)
- Additional Medicare
- QBI reductions
- Retirement contributions
- Year-end bonuses
Proactive planning avoids surprises in April.
At Accounting Fresh, we calculate estimates based on your:
- YTD numbers in QuickBooks
- Owner draws
- Planned bonuses
- Retirement strategy
- Major purchases/depreciation strategy
8. Use Depreciation & Section 179 Wisely
S-Corps that purchase equipment—vehicles, heavy machinery, computers, or tools—may qualify for:
- Bonus depreciation
- Section 179 expensing
- Standard depreciation schedules
Contractors, electricians, plumbers, and real estate investors benefit heavily from expensing new equipment.
But watch out:
- Bonus depreciation is phasing down
- Section 179 has limitations
- SUVs over 6,000 lbs have special rules
Getting this wrong can cost thousands.
9. Review Your Books Monthly (Not at Tax Time)
Clean monthly books = fewer errors + more deductions + lower tax liability.
For local businesses in San Diego County, the strongest S-Corps follow a monthly close process that includes:
- Reconciling all accounts
- Reviewing owner distributions
- Categorizing expenses properly
- Updating job costing (for construction)
- Reviewing financials for tax planning
This is exactly what our team at Accounting Fresh handles for clients every month.
10. Work With a Local CPA Who Understands Your Industry
S-Corp tax strategy is not one-size-fits-all.
Construction, restaurants, property groups, professional services—they all have different rules and opportunities.
A local CPA familiar with:
- Multi-entity structures
- Job costing
- Payroll optimization
- Real estate/LLC structures
- Multi-state issues
- Contractor tax code
…can save you far more than the cost of services.
Final Thoughts
An S-Corporation is one of the best tax-saving tools available—but only when it’s set up and managed correctly. The right salary, retirement plan, reimbursements, and monthly bookkeeping can mean the difference between overpaying the IRS or keeping thousands of dollars in your business.
If you’re a San Diego business owner and want help with your S-Corp setup, bookkeeping, or tax planning, reach out anytime. Accounting Fresh is here to help you run cleaner books, save more on taxes, and grow with confidence.