Q:

Subject: Subchapter S Corp vs Sole Proprietorship

Hello,

I read information on your website showing the advantages/disadvantages between C and S Corporations. But I could not find any literature from you on S Corps vs Sole Proprietorships. I have been looking to go from a Sole Proprietorship  (Sched C) to Incorporating and Filing for Subchapter S status.  The reason I am contemplating this is that I was told I can avoid paying social security and medicare taxes on my income.  I know the shareholders of a C Corporation can take dividend distributions. Is this true of S Corporations?  And is this the means to avoid paying ss and medicare taxes.

I would appreciate your input.

Thanks.

A:

Using a corporate structure instead of sole proprietorship is one of the easiest ways to drastically reduce your tax burden, as well as give you additional personal liability protection.  I discuss many of these points on my main website, as well as  in several blog postings.

Before you do anything, you should work with a professional tax advisor who understands how small corporations work, to see how your particular circumstances can most efficiently utilize a C or S corporation.

To save time and money with the tax pro, it would be a good idea to get a copy of one of the basic books on incorporating to familiarize yourself with the fundamentals of how corporations work.  Two of the best are from:

          Nolo Press - printed book    

          Corporate Publishing - free online virtual book

Good luck.

Kerry Kerstetter
 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/01/2005 12:22:00 PM Send this post: