Q:

Subject: S VS C

 

Hello Mr. Kerstetter,

 

…I am an Optometrist in Miami slightly confused on which Corp is better.  I am not sure if you answer personal questions but thought I would try.

 

By your comments it seems that a C is better but most Optometrist have a S.  I put my yearly income on about 130-150K and want to make sure I'm not paying the government more than I should. 

 

You mention that a C has a 15% tax bracket for 50K vs being taxed on the S corp total earning as sole owner .  My only concern is that a C corp is taxed twice and don't know which one would be better.  What are considered royalty payments that are not taxed twice?  Also, I would be setting up a 401K but I'm limited to how much I can put in.  Would I be able to put my wife as an employee even though she is not doing anything for the corp and start her on a 401K? Can I put money away in a term life insurance to prevent double tax or any tax?

 

I hope that you may have some simple solutions for me.

  

Thank You

A:

There are far too many variables involved for me to be able to advise the best entity and jurisdiction to use for your particular situation via this medium.

To work out the best solution for your particular circumstances, you really need to work with a tax pro who can help you set up a strategy that will work for you.

I wish I could help you; but I already have too many clients to take care of; so we are not accepting any new ones at this time.

Unfortunately, we don't have anyone else to whom we could refer you. If you haven't already done so, you should check out my tips on how to select the right tax preparer for you.

It does look as if you are confused over the issue of double taxation.  This only happens when income that has been taxed at the C corp level is taken out by the shareholders as dividends.  Since dividends are not tax deductible by the corp, and are taxable on the shareholder's 1040, it is being taxed twice.  The solution to this is to only take money out in ways that are deductible by the corp.  In fact, I advise my clients to banish the word dividends from their vocabulary.  A good tax advisor should have no problem helping you use a C corp in the best manner to avoid any double taxation.  It is not difficult at all.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 3/25/2006 11:44:00 AM Send this post: