Why Choose an S Corporation
An S-corporation can save taxes by avoiding self-employment taxes on distributions. Reasonable salaries are required to maximize benefits and avoid IRS penalties.
Tax Advantages of S-Corps
Sole proprietorships pay self-employment taxes on all profits, unlike S-corps which can split earnings between salaries and distributions to save taxes.
Shareholder-Employees in S-Corps
Shareholders in S-corps receive salaries and distributions, with only salaries subject to employment taxes, allowing for tax savings.
Drawbacks of S-Corps
Extra paperwork and costs exist with S-corps, requiring careful planning to ensure reasonable salaries and maximize benefits.
Choosing the Right State to Incorporate
Incorporating in the home state is usually beneficial due to simpler licensing and regulations, although other states may offer tax advantages.
Potential Tax Savings with an S Corp
S corporations can provide tax savings by avoiding double taxation and allowing income to pass through to shareholders. Making the right tax election can lead to significant tax savings.