Just went through the process to become incorporated upon the advise of my accountant. I'm adding pesticide and irrigation services this year, so I felt I could use the added liability protection, plus the benefit of not paying SS (FICA)tax on all the profits. Anyway, what I want to know is, when those of you who were happily chugging away as a sole proprietor went and incorporated, what changes did you experience? Were there any surpises? How did it change your day to day operations? I think you get my drift.
I am in the same process as you are. At this point the only thing different is the paper shuffle. However, we are in the process of putting together a business plan as well as a sales and marketing plan. Last year I was a little unorganized and his year has been much better already. Good luck with your corporation. I think you're headed in the right direction. Joe
Can I answer this question with a question? If your SS issues are close to 15% as a sole pop what are the as a chapter S? Example $50k as a sole pop=$7500 What is $50K as a Chapter S=?
Ok in Indiana I know being INC. u got to pay taxes 4 times a year.U do not get 1099's from customers accountants no more.And keeps someone from taking your home if you ever get sued. My 2 Cents worth take it or weave it.
I S corped last year. The daily operations are not changed. Mostly paper work is more as smithf36, though my CPA takes care of most of that. As I understand it, your Soc. Sec. tax is dependent on what salary you take from the corporation. If the corporation pays you $25k a year, you pay Soc. Sec., federal tax, etc on the $25k. If the corporation has a good year and cuts a dividend check for an extra $5k, you don't pay Soc. Sec. tax on the $5k. It's considered passive income (like rental income) and is not subject to Soc. Sec. tax. I am not a tax professional and this shouldn't be considered as coming from such. Consult your favorite tax lawyer/CPA.
If that is correct about the SS tax on dividends, why would you want to pay yourself a wage? You could pay yourself all in dividends. As the main share holder and board office you could issue payment of dividends as you seen fit, right? It was to my understanding that as a sub-chapter s corporation, the owners or share holders recieved payments totally tax free, in just the sence that the corporation paid all the taxes. In other words, after expenses, taxes are paid on profits, then profits distributed to share holders as where the taxes have allready been paid on such monies. I thought that was considered dividends. If so and you still file dividends on your personal tax form, then you are being taxed federal twice on the same dollar. That cannot be right. Does that sound right?
Lawrence, I think as a Sole proprietor your actual SS tax is 7.5% since you get to claim half off your personal tax form for being self-employed.
You dont get a dollar for dollar deduction a la tax credit, the 7.5% reduces your taxable income. You still pay 15%, though its more like taxable income less (enter %age tax bracket you are in) of 7.5% Are you confused yet??? "If that is correct about the SS tax on dividends, why would you want to pay yourself a wage? You could pay yourself all in dividends. As the main share holder and board office you could issue payment of dividends as you seen fit, right?" Not that anyone probably cares, but the less you pay in the less you will get back.
You are able to deduct half of the self-employment tax from your income. It is a deduction of income... [Edited by LoneStarLawn on 01-06-2001 at 01:53 PM]
