please help to answer

[florida2001]

Florida"
Hi ,

I have a question, would it be beneficial to open company in order to reduce an income taxes? I am independent contractor, making about 18K year. It was recommended by few people to open up a corporation in order to reduce my taxes. Would it benefit me in some way?

Also do I have to pay social security tax? In other words is it mandatory?

thank you

 

[LdiJ]

Florida"
Hi ,

I have a question, would it be beneficial to open company in order to reduce an income taxes? I am independent contractor, making about 18K year. It was recommended by few people to open up a corporation in order to reduce my taxes. Would it benefit me in some way?

Also do I have to pay social security tax? In other words is it mandatory?

thank you

No, it would be unlikely to be of any benefit to you. Yes, it is mandatory to pay self employment taxes (social security and medicare).

For some people, it can be of some benefit to open an S-Corp. If they can pay themselves an official fair market wage (with proper withholding and a W2 at the end of the year) and still have a profit at the end of the year after paying the fair market wage, then that profit can be free of social security and medicare taxes. However, with you only making 18k a year, your entire profits would need to be your fair market wage.