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11-01-2008, 04:12 AM
| | Junior Member | | Join Date: Nov 2008
Posts: 1
| | | Type "S" Corporation
What is the name of your state (only U.S. law)?
Washington State, USa
Would it be best for a small sole proprietor to switch to a type S corporation so that it did not have to pay self employment taxes? |
11-01-2008, 09:47 AM
| | Senior Member | | Join Date: Mar 2006
Posts: 5,019
| | | You'll still be paying the taxes on your salary and on distributions (if the corp was a personal service corp). There is no payroll/self-employment tax savings absent weird facts.
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11-03-2008, 03:53 PM
| | Member | | Join Date: Nov 2007
Posts: 219
| | Quote:
Originally Posted by tranquility  You'll still be paying the taxes on your salary and on distributions (if the corp was a personal service corp). | Personal service corporation status only applies to C corporation not S corporations. |
11-03-2008, 07:10 PM
| | Senior Member | | Join Date: Dec 2007 Location: Alajuela - La capital del mundo
Posts: 1,120
| | Quote:
Originally Posted by John Derrick What is the name of your state (only U.S. law)?
Washington State, USa
Would it be best for a small sole proprietor to switch to a type S corporation so that it did not have to pay self employment taxes? | You really need to look at this long term. I'll give you the facts, but I suggest that you speak to a CPA.
In an S Corp the earnings are passed through to the owners on a a K1 and become a part of the owners adjusted gross income and is taxed in that manner. The owners of an S Corp do not contribute to FICA and FUTA and therefore not eligible for benefits.
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That's akin to OJ saying that the knife manufacturer should have never sold him the knife because, after all, they should have expected him to use it.
| Thanx YAG    |
11-03-2008, 07:43 PM
| | Member | | Join Date: Nov 2007
Posts: 219
| | Quote:
Originally Posted by Wirelessany1 You really need to look at this long term. I'll give you the facts, but I suggest that you speak to a CPA.
In an S Corp the earnings are passed through to the owners on a a K1 and become a part of the owners adjusted gross income and is taxed in that manner. The owners of an S Corp do not contribute to FICA and FUTA and therefore not eligible for benefits. | An s-corp shareholder providing services to the corporation (such as someone who was previously a sole proprietor) had better be drawing wages/salary subject to payroll taxes or risk having all dividend distributions subject to payroll tax. | |
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