As a business owner, you may have heard the buzz about how using an S corp can save you money on your taxes, but are you confused about what an S corp is or how it can help?

An S corp, short for S corporation, is a special type of corporation that allows profits, and some losses, to pass directly to the owner’s personal income without being subject to corporate tax rates.

While there many other factors that contribute to whether or not an S corp is the right structure for your business, here are a few ways you can protect yourself from the IRS if you and your tax professional do decide to go the S corp route:

1. When drafting and signing contracts for services and business, be sure all of the documents point to your corporation as the provider and not you personally.

2. Open a corporate bank account to keep business expenses separated from personal expenses.

3. Have all payments for services be made to the corporation and never to you personally.

4. If you have employees, be sure to pay yourself as much as you pay your highest-earning team member.

5. In order to know what to pay your staff, compare salaries/per hour wages for employees in your industry in your area so you can justify your “reasonable compensation” payroll expenses if you’re ever audited.

6. Always keep your subcontractors’ and other employees’ billable hours in a different category than you have for laborers. Income from other people’s work is easier to write off as profit.

If you’re still unsure of how you should incorporate your business or are frustrated to the point of randomly picking a business classification, be sure to reach out to a professional before you make any solid decisions. One phone call could literally change your life.