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Old 01-24-2013, 06:33 PM
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JFGLN JFGLN is offline
LawnSite Senior Member
Join Date: Mar 2004
Location: Olympia, Washington
Posts: 898
Originally Posted by britsteroni View Post
Don't confuse S-Corps and C-Corps. For most in this industry, a C-Corp would be a terrible move. There are some advantages, but they are few if you are a small business owner.

Having said that, let's go over an example to make sure we're all clear:

205MX Lawncare 2012 Profit and Loss:

Filing as a Sole-Prop on Sch C:

Total Sales: $80,000
Total Expenses: 40,000
Profit: $40,000

Taxes involved:
Self Employment Tax: $6,120
Federal Income Tax(assume actual tax rate of 15%): $6,000
State Income Tax (assume 5%): $2,000
Total Taxes Paid = $14,120

Now if filing 1120S:

Total Sales: $80,000
Total Expenses: $40,000
Owner's Salary: $30,000
Payroll Tax Expense: $2,295 (7.65% if the owner's salary)
1120S Profit: $7,705 ---> This profit flows to your 1040 and is reported to you on a K-1.

So, now it is time to file your personal 1040:

Salary $30,000
Profit from K-1 from S-Corp Return: $7,705

SS & Medicare Taxes on Salary = $2,295
Federal Income Taxes (on salary and K-1 profit) = $5,656
State Income Taxes = $1,885
Total Taxes Paid = $12,131 (Remember, even though the S-corp paid one half of the SS taxes for the owner's salary, it still comes out of the owners pocket.

So, by filing the S-Corp instead of Sole-Prop, you save $1,989. Much of that savings is going to be eaten up by accountant's fees. Plus the additional time it will take you as the business owner for record keeping and other filings.

This above example isn't to the penny and there are a few things I left out, but it gives a good overview of how the tax calculation works out.

Note that the $7,705 from profit from the S-Corp is taxed at the same federal and state rates as the sole-prop. The only difference is the payroll tax savings.

Hope this was helpful.
Some other things to think about,

Trucks and equip are owned by the corp. Auto insurance cost more.
I get a paycheck every 2 weeks like the other employees.(assuming sufficient funds)
I lease my shop to the corporation which makes me a landlord with rental income and possible write offs.
Corp has its own credit rating.
Cost more to have taxes prepared.
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