Tax Savings

If you are operating as a sole proprietor, you will be required to pay self-employment tax on your profit, currently at 15.3% in tax year 2006.

Sole proprietors may be able to save on self-employment taxes by incorporating and paying themselves a fair market salary as employees of the S-corporation.

Self-Employment Tax Savings Calculator: Our calculator can help you figure out potential tax savings as an S-corporation.

C-corporations are afforded a series of tax benefits and advantages by the IRS that are not available to sole proprietorships and other forms of small business. For example, the C-corporation may offer tax advantages if the business sustains losses for a period of time.

C-corporations also have the ability to divide income between the corporation and its shareholders in a manner that lowers overall taxes. Profitable small businesses with shareholders in higher tax brackets stand to benefit the most from the practice of "income shifting."