LEARNING CENTER
Are you ready to form a corporation or LLC but need more information? Find it here.
- Why Consider Incorporating?
- Choosing the Right Entity Type
S-Corporations
An S-corporation begins its existence as a general, for-profit corporation upon filing the Articles of Incorporation at the state level.
Once the S-corporation filing is complete, the corporation is taxed like a partnership or sole proprietorship rather than as a separate entity. Thus, the income is "passed-through" to the shareholders for purposes of computing tax liability.
Therefore, a shareholder's individual tax returns will report the income or loss generated by an S-corporation.
Comparison Chart: Compare business entities.
If you are paying high self-employment taxes, an S-Corporation may be worth considering.
As a sole proprietor, you will be required to pay self-employment tax on your profit, currently at 15.3% in tax year 2006. The self-employment tax consists of two parts: 12.4% for social security and 2.9% for Medicare. While only the first $94,200 of your combined wages, tips, and net earnings in 2006 is subject to the social security tax, all earnings are subject to the 2.9% tax for Medicare.
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.
