Stephen Merritt, CPA, PC  |  Certified Public Accountants  |  (757) 420-5778
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September 2025:

• From Sole Proprietor to S-Corp: Consider a Switch
• Family Teamwork: A Smooth Transition Through the Ages
• The Truth Behind Common Tax Myths
• The Real History Behind Common Everyday Objects

From Sole Proprietor to S-Corp: Consider a Switch

As a freelancer or contractor, at some point you may wish to incorporate and be taxed as an S corporation. Here’s a closer look at the process of becoming an S corporation and when switching might make sense for you.

The main benefits of S corporations

• Self-employment tax savings. As a sole proprietor, you’re required to pay a 15.3% self-employment tax (which includes Social Security and Medicare) on your entire income. However, with an S corporation, you can split your income into two parts: a reasonable salary (which is subject to self-employment taxes) and distributions (which are subject to income taxes but not self-employment taxes).
• Pass-through taxation. Similar to sole proprietorships, S corporations are considered pass-through entities. This means that the business itself doesn’t pay income taxes. Instead, profits and losses pass through the business to the owner’s personal tax return. Profits of a C corporation, on the other hand, are taxed twice – once at the entity level, and again on the owner’s tax return.
• Legal protection. If there is a risk of possible legal action, an S corporation can potentially help protect your personal assets from your business assets. For example, this can be especially helpful if you are in the contractor trade and the customer makes a claim against the fulfillment of your contract.

While transitioning from a sole proprietor to an S corporation can certainly result in significant tax savings, there are a few trade-offs to consider.

Trade-offs to consider

Most of the trade-offs are centered around administrative requirements and potential costs. These include:

• Running payroll. Even if you’re the only employee, you’ll need to set up payroll and withhold taxes. Many business owners use a payroll service to handle this.
• Separate tax filing. Your business will now need to file a Form 1120-S tax return with a March 15th due date in addition to your personal tax return.
• Accountants or bookkeepers are typically used. Most S corporation owners work with professionals to handle bookkeeping and tax filings.
• Reasonable salary requirement. The IRS expects owners to pay themselves a fair market wage. Underpaying yourself to avoid taxes can lead to penalties.
• State-level requirements. Some states have minimum franchise taxes or annual fees for corporations and LLCs, regardless of income.

When it makes sense to switch

Switching to an S corp generally becomes worth considering when your net income (after expenses) is in the range of $75,000 to $100,000 or more per year.

Here’s an example:

Assume you earn $120,000 in net income as a consultant.

• As a sole proprietor, you’d pay self-employment tax on the full amount, about $18,000.
• As an S corp, if you pay yourself a reasonable salary of $60,000, you’d only pay payroll taxes on that amount, roughly $9,200. The remaining $60,000 in profit would be subject to income taxes but not payroll taxes.That’s a potential tax savings of nearly $9,000 per year.

Switching from a sole proprietor to S corp can offer real tax advantages, but it’s not a one-size-fits-all solution. It’s usually best practice to review your situation once per year to ensure your business is organized properly.

Family Teamwork: A Smooth Transition Through the Ages

Deductions, credits and more

As you get older, so do your parents and grandparents. And at some point, the need for support and transition becomes unavoidable. If you’re lucky, the shift happens gradually. But without planning, it can arrive suddenly and feel overwhelming. Here are some suggestions to make the transition smoother for everyone involved.

Parents (or grandparents!) – Proactively plan

Talking to your children or grandchildren about money, health, and living arrangements are not normally addressed. Your goal is to be prepared should you be faced with an emergency. This way you can avoid making key decisions in emergencies, such as in the ER, after a fall, or under emotional strain.

What you can do:

• Make it legal. If you have not already done so, set up a will, power of attorney, and healthcare directive. Most states have a preferred legal format that is often accompanied with a list of questions. Walk through this document with your children, and while it may seem awkward, remember they may need to be the one carrying out your wishes. Without these, your children may face expensive and drawn-out legal battles just to act on your behalf.
• Share your financial picture. Start small. It may be as simple as providing a place to get a list of your accounts and passwords if needed. Your children don’t need every detail, but they need enough to understand resources, debts, and insurance coverage.
• Clarify wishes for care. Do you want to age in place? Would you consider assisted living? Who do you trust to make medical decisions if you can’t? What funeral arrangements make sense?

Children – Initiate conversations sooner rather than later

This isn’t about taking control from your parents, but rather it’s about being ready to help when it’s needed. Ideally your parents are having these conversations with you periodically, but if not you may find that you need to step into this void.

How you can help:

• Learn their wishes now. Ask where they’d like to live if living alone becomes unsafe, and what kind of care they would like. Or explore a plan to stay in their house, if that’s their wish. Who knows, they may already have a robust plan in place, but then you’ll know!
• Understand available resources. Know which bank accounts, insurance policies, and retirement funds exist, and where to find documents. Also get a general feel if there are adequate funds in place to navigate the next phase of life.
• Build your own plan. Prepare financially and emotionally for the possibility that you may need to help cover costs or coordinate care.
• Become a resource. Pay attention to changes in laws, then relay this information to your parents. An example is the extra $6,000 senior deduction passed into law in July. By staying alert, you can ensure your parents are taking full advantage of the opportunities made available to them.

Know the tax tools available

Money is often the biggest stress point in transitioning to new living arrangements or higher levels of care. But many families overlook the tax credits, deductions, and programs that can ease the financial burden. Here are some key areas to explore:

• Medical Expense Deductions. If medical and long-term care expenses exceed 7.5% of your income, they may be deductible, including in-home care, assisted living (if medically necessary), and medical equipment.
• Dependent Care Credit. You may qualify for this credit if you pay for the care for a dependent parent while working.
• Claiming a Parent as a Dependent. If you provide more than half of your parent’s support, you might be able to claim them as a dependent, which can further reduce your taxable income.
• State-Specific Credits. Some states offer tax breaks for care giving or senior housing. Check your state’s tax agency for details.
• Health Savings Accounts. These accounts can be used tax-free for qualifying medical expenses for your parents if they’re considered dependents, even if they’re not on your insurance.

Get started today

The problem isn’t that children and parents don’t care about transition planning…it’s that they think there’s plenty of time to do it. Unfortunately, this is not always the case. Here’s how you can start taking action today:

• Schedule a first meeting. Don’t wait for the right moment. Put it on the calendar.
• Break it into small pieces. Talk about housing one week, finances the next. Avoid trying to solve everything at once.
• Document agreements. Even informal notes can be a lifesaver later.
• Review regularly. Life changes. So should the plan.

If handled properly, these planning discussions build a level of trust and create a level of partnership. The sooner you start talking and planning, the more control you’ll have over choices, costs, and comfort.

The Truth Behind Common Tax Myths

Tax myths can spread quickly, leading to costly mistakes or missed opportunities. Here are several common tax myths along with best practices to help you stay grounded in reality.

Myth: Moving into a higher tax bracket means you’ll take home less money

Reality: The U.S. tax system is progressive, meaning your income is taxed in layers. There are currently 7 different layers, with tax rates ranging from 10% to 37%. When you enter a higher tax bracket, only the portion of income above the bracket threshold gets taxed at the higher rate, not your entire income.

Best Practice: Know your marginal tax rate! This is the tax rate of the next dollar you earn. By understanding this you can do your own calculations on the impact of any additional income you earn.

Myth: Getting a tax refund means you did something right.

Reality: A tax refund means you overpaid your taxes. It’s your money, coming back to you – without interest. Getting a big refund might feel great, but from a cash flow perspective, you’re better off adjusting your withholding so you keep more of your paycheck each month.

Best Practice: Review last year’s tax return, then update the numbers to reflect your situation for the current year. Factor in the latest changes such as tax-free tips, tax-free overtime, and increased standard deductions, including the new $6,000 deduction for seniors. Once you’ve made these adjustments, revisit your paycheck withholdings to make sure they’re on track.

Myth: You can deduct all your expenses if you’re self-employed.

Reality: Not quite. While being self-employed certainly opens up more deduction opportunities, not every expense qualifies. Only ordinary and necessary business expenses can be deducted. That family trip overseas doesn’t qualify unless it was genuinely work-related (and even then, only parts of it might qualify).

Best Practice: Set up a dedicated business bank account to handle all income and expenses related to your work. Then establish a regular schedule to transfer funds into your personal account for all non-business spending. And don’t commingle funds with your personal expenses. The IRS may be quick to throw out ALL expenses if they see this occurring.

Myth: You don’t have to report income if you didn’t receive a Form 1099.

Reality: If you earn money, the IRS expects to hear about it, regardless of whether you received a Form 1099. Many people assume that if a client or gig platform doesn’t send you a 1099, then that income doesn’t need to be reported on your tax return. But that’s not how it works. The tax code requires you to report all income, no matter how it’s documented – or if it’s not documented at all.

Best Practice: Keep a list of past 1099s to help you remember which clients or platforms have paid you before, and to double-check if you earned income from them again this year.

Please call if you have any questions about your tax situation.

Real History Behind Common Everyday Objects

It’s easy to overlook the ordinary. A zipper, a fork, a paperclip. Each plays a small but essential role in daily life. Yet behind many of these tools are extremely interesting, strange, or accidental histories. Here’s a closer look at the real origins of some of the objects we use every day.

The paperclip: A symbol of resistance

The paperclip may seem like a product of office supply boredom, but its story is more complicated…and even political. While several designs emerged in the 19th century, the most widely recognized version was never patented. Norwegian inventor Johan Vaaler filed a similar patent in 1899, but it was less functional than the Gem-type paperclip we know today, developed by an unknown British manufacturer.

Oddly enough, during World War II, Norwegians wore paperclips on their lapels as a silent protest against Nazi occupation. It became a symbol of resistance and unity, proof that even the smallest items can carry weight.

The fork: Once seen as excessive and unholy

The fork is now a staple of Western dining, but for centuries it was considered unnecessary, even decadent. In medieval Europe, people ate with their hands, spoons, and knives. When forks began appearing in Byzantine courts, they were viewed by some religious leaders as prideful, a sign of vanity or softness.

It wasn’t until the 17th century that forks gained acceptance in France and Italy. Catherine de’ Medici is often credited with bringing them to prominence in Europe when she married into the French royal family. By the 18th century, forks had gone mainstream, changing table manners forever.

The zipper: A name that made it stick

The zipper’s development was a slow burn. In 1893, Whitcomb Judson introduced a clasp locker meant to fasten boots and shoes. His invention, though, turned out to be bulky and unreliable. In 1913, Gideon Sundback improved the design, creating what we now recognize as the modern zipper. But it wasn’t until the B.F. Goodrich Company used it on rubber boots in the 1920s, and called them Zipper boots, that the name and invention caught on.

Zippers weren’t just for fashion. During WWII, they became standard on military gear, appreciated for their speed and simplicity. Today, billions are manufactured each year, quietly holding our world together.

The eraser: Once made of bread

Before rubber, people erased pencil marks with…bread. Crustless, balled-up bread was the go-to erasing tool from the 1500s until the late 1700s. In 1770, British engineer Edward Nairne accidentally picked up a piece of rubber instead of bread and discovered it worked better. He began marketing rubber erasers soon after.

The term rubber itself came from this use. It described a substance that could rub out pencil marks. It wasn’t until vulcanized rubber (made more durable by adding sulfur) was invented by Charles Goodyear that erasers became a durable staple of stationery.

Look for the hidden stories all around us

Everyday objects are often invisible until we pause to consider them. Yet their histories are full of innovation, cultural resistance, accidents, and reinvention. They remind us that even the most ordinary things have extraordinary stories, if we take the time to look closer.

As always, should you have any questions or concerns regarding your tax situation please feel free to call

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