S Corporation

S Corporation can reduce your self employment tax

You might have read an article discussing S corporation is the best structure for you. However, it ultimately depends on your own business structure, scale, type of revenue and expenses to best determine the best entity structure for your business.

S Corporation can generally reduce your self-employment tax on part of your income, which is equivalent to 15.3% of your net business income. However, you will be expecting to have a higher overall accounting cost for an S Corp as you will have to pay yourself a reasonable salary to maintain your S Corp status.

In comparison to a C Corporation, an S Corporation is a better option for small businesses. There is no double taxation for S Corporation, and most small businesses meet the requirement of being an S Corporation.

Sole Proprietorship

Sole Proprietorship has the least maintenance cost

Before forming an entity legally, a small business would be considered as a sole proprietorship. A sole proprietorship is the simplest way to start a business. The cost of maintaining and annual filing is also the least and is more straight forward comparing to any other entity structure.

However, if your company is starting to generate more than $50,000 net income, you can consider start switching to an S Corporation for potential benefits.
An analysis should be completed before making to changes, and you should consult with a CPA for tax advice.

There are much more details to these but if you are interested in forming an entity for better tax saving and liability protection, contact Vincent Ha, CPA today.