Are You Earning more than $350,000 Per Year?


If your Form 1040 income is less than $350,000, including your anticipated income from this new business, then from a tax perspective you might not need a C Corporation. You can use the S Corporation to flow income through to yourself, in a combination of W-2 salary and profit distributions. You’ll have income tax on both portions of the money, but you will only have payroll taxes on your W-2 income. Your profit distributions will flow through to you without additional payroll tax (at least right now).

On the other hand, if your income, including the income from this new business exceeds $380,000, you’ve moved into the top tax bracket. All income that falls into this bracket will be taxed at 35% federally. Now you might want to explore how the C Corporation tax structure could benefit you. C Corporations have their own tax brackets, which can be lower than personal brackets. For example the first $50,000 in net income in a C Corporation is taxed at 15%. If you had that same profit in an S Corporation, it would come through to you as a profit distribution and be taxed at your personal rate, which could be as high as 35%.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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