941 & Business Taxes

Taxing Businesses: Choose the Right Entity

WATAX has had the pleasure of having multiple business clients from attorneys to chocolate makers. We consider it our job to inform our clients of the best way of structuring the business for success and the most reasonable tax rate.

Let's explore the various ways you can be set up as a business by using an example of a business who makes a $100,000 profit.

1. As a sole proprietor or single member LLC or general partner, you would pay federal taxes PLUS 15.3% towards your Social Security/Medicare. $30,000 taxes.

2. As a C corp, you would pay a 22% tax rate on all profits and then another tax on the money you took out (dividends) for another 15%. $37,000 taxes.

3. As a S corp or LLC that elects to be a S corp, you would NOT pay any self employment taxes on your K-1 income. (but you would be encouraged to go on payroll and pay yourself wages for a reasonable compensation). $20,000 taxes or a bit more when you go on payroll.

Ladies and gentleman, the S corp is the winner! Sole prop/single member LLC is 2nd and C Corp is the loser. C corps are best for folks with great ambitions who want to sell their huge company some day. They are based on a growth model where profits are recycled to grow the company. For most businesses, the S corp is the best model.

Please contact WATAX to learn more about S corps and other US tax compliance issues.

Posted on September 12, 2023

Is 2024 the year to solve your tax issue? WATAX is ready to assist you now. Please call us at 1-888-282-4697 or email us a description of your tax issue and we'll contact you promptly.

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