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Posted by Benjamin Yazersky CPA on September 27, 2007, 2:37 am
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> A close relative is giving consulting a try. For now she's
> operating as a vanilla sole proprietor to minimize the red
> tape until she decides if it's going to work out and be
> sustainable/profitable. If she decides it does, she'll
> certainly talk to a lawyer and a tax pro before messing with
> entities. But in the meantime we're trying to get some
> perspectives on different forms of business.
>
> The most common info one tends to read seems these days to
> recommend operating as a sole prop, as an S-corp, or as an
> LLC that chooses to be taxed as a sole prop or an S-corp.
>
> However, the other day we were reading an interesting book
> by Nolo Press on business structure that made some pretty
> interesting arguments for a one-man operation organizing as
> a C-corp instead of an S-corp (if you're not going to be a
> sole prop or disregarded entity).
>
> Some of the author's arguments:
>
> * For a one-man operation, an S-corp doesn't give much of a
> chance to avoid payroll taxes because pretty much all the
> profit has to be taken as wages.
>
> * For a one-man operation, the double-taxation a C-corp
> brings into play can be made mostly irrelevant if most/all
> of the profits are taken out as wages, making a C-corp no
> worse than an S-corp if you go that route.
>
> * However, with a C-corp you have the option to not take out
> all profits as wages. The remainder will indeed be taxed at
> the corporate level, but then this gives higher bracket
> people the ability to split their business income between
> themselves (as wages) and the corporation (as corporate
> profits) and get the first $50,000 of corporate profits
> taxed at only 15%. While those profits will eventually be
> subject to a second tax when they ultimately come out, that
> can be deferred indefinitely, may be at a low rate (as
> qualified dividends), or can be paid out as wages in years
> when you are personally in a low bracket.
>
> * A C-corp gives full fringe benefit flexibility, allowing
> access to plans and fringes that are disallowed to sole
> proprietors or to S-corp owners.
>
> On the downside, it's also more complicated, may subject you
> to state corporate minimum taxes, may cost more to set up,
> have higher compliance and filing costs, etc.
>
> Comments?
There are different issues with each type of entity.
Each has its advantages & disadvantages.
Facts & circumstances will help decide which is most
appropriate for your situation. You should consult your
CPA/tax advisor to help determine which one works best for
you.
___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
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