I will be incorporating this year and have been reading about it. I wonder if any of you know the best type to use.
I like the S corp tax advantages and see I could do a LLC and file for S corp tax status. Or I could just do the S corp thing on its own. What would be the benefits one over the other.
Have you thought of Sole Proprietor.
As the name implies, as a sole proprietor, you are the sole owner of the business. All you really have to do is hang out a shingle and register with the IRS, and your city and state, and you are all ready to go. Taxes are much easier. The biggest problem with this form of business is that your personal assets are liable if your business is sued. But after 25 years in business we never have been.
With an S-corporation, the corporate structure provides a shield for liability. There are a few disadvantages to S-corporations when compared to sole proprietorships. If you have income earned by your business, the entire amount is taxable, whether or not your business has distributed the income to you. Another disadvantage to the S-corporations is the amount of record keeping is much greater. Lastly, the owners of an S-corporation are required to pay unemployment insurance taxes on their salary (if they get one), where the owner of a sole proprietor does not.
This all from The Bottom Line,
http://outright.com/blog/s-corporation-or-sole-proprietorship-which-business-entity-is-right-for-me/
Ive run business all my life as a sole proprietor and know the positive aspects of it tax wise. But the advantages of a corporation really sounds good. I have more assets than I use to on the personal side and taxation can be manipulated nicely with a s corp. At times I have had large orders that really changed my tax brackets. This could be overcome with and S corp or at least lessened. I'm just not sure if I would be better off doing a LLC with Scorp tax status or a full S Corp.
In a "fat" year, only a C Corp can retain funds to even out income in the years that follow. S Corp profits automatically roll into personal income of the shareholders. About the only tax shelter there is the ability to take some of the profits as a distribution rather than payroll so you avoid payroll taxes on that portion, but the distribution is still taxed as capital gains in the year it's earned.
All of the corp variants require quarterly and annual wage reporting so if you don't do your own accounting, paying for the additional service may make your tax advantage evaporate. Every quarter it's a 940 to the feds and a UCT-6 to the state. Then additional forms at the end of the year. Depending on how much you pay yourself, payroll taxes have to be deposited monthly. That bit is easily done online with an EFTS transfer from your bank.
If I'm not mistaken, self-employment pay taxes are actually less than the 2 halves of payroll tax (SS and Medicare) from a corp. It's been probably 10 years since I was self-employed so I don't actually remember, but I believe this to be true.
June