Don’t Incorporate or Be an LLC Until You Listen
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February 16, 2023

Listen to Jay Freeborne, E.A. and Stuart Bloomfield of WATAX explore some of the pitfalls, tax implications, and solutions associated with mistakes in selecting how to set-up your entity on the latest "Welcome to the Resolution" Podcast. How are $100,000 in profits is taxed by a C corp, S Corp and a sole proprietorship (single member LLC) to you the individual: Sole prop: profit $100,000 - your tax bill is $28000 roughly (this includes $15,000 roughly to fund your Social Security Medicare.) plus you get deduct 20% for Qualified Business Deduction (QBI). S corp: profit $100,000 - your tax bill is $15384. No Social Security/Medicare required on dividends. Although you should get on payroll! (probably for 50k in this situation and pay $7500 to soc/security medicare), plus you get to deduct 20% for QBI deduction. C corp: company level profit $100,000 x 21% = $21000. Let's say you choose to pay yourself in dividends, you will then owe an additional $15,284 in taxes. And zero QBI DEDUCTION!!! Partnership, multi member LLC - limited partners: $100,000 profit distributed to one partners has $15,284 taxes due. (If you are a General Partner you would pay Social security/medicare taxes on this income at 15.35% rate). All of the above entities have their merits. But clearly the C Corp is the worst model for your average small business. You pay the most taxes with the fewest benefits. To make matters worse: C corps don’t even get the 20% QBI deduction like the other entities! Even sole props get the benefits of higher Social Security and medicare coverage for their high tax rate! S corp might just be the sweetest spot. You pay some Social Security taxes on your wages but not on your dividends. Sponsored by Washington Tax Services -

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