Why becoming a S - Corporation can make sense:
The fact that:
1. LOW AUDIT RISK. The IRS doesn't audit S-Corporations very often. At least based on our experience.
2. LESS PAYROLL TAXES. Outside of the wages that officers in a corporation must pay themselves, Officers can ALSO pay themselves in dividends which are NOT subject to payroll taxes - which is a 7.65% on income.
3. LIABILITY EXPOSURE REDUCED. Corporations can protect owners from personal liability.
Sole proprietors get
1. Audited more
2. Pay payroll taxes or social security taxes 7.65% on all of their income as they are their own employers!
A pretty bad deal all around.
Becoming a S - corporation also requires you to file the S election. Don't forget that - otherwise you'll be taxed as a C-corporation which can be a giant headache. We at Watax.com also encourage businesses to be LLC's that elect to be S-corporations - simpler paperwork with similar protections.
Have a tax problem you want us to solve? Starting a business and looking to incorporate for the above reasons? For 30 years, WATAX has been solving every kind of tax problem. Call us at 1-888-282-4697 or email us a description of your tax issue and we'll contact you.