S Corporation or C Corporation tax: Which is better?

Either of these choices is ideal for an active business, and will wind up helping you to save tax dollars. If you’re wondering which one is best for you, talk with your tax professional. But here are a few basic pointers to help you decide:

If you provide a professional service, you may want to make the S Corporation election. That will lower your tax bill and get you away from Personal Service Tax, which is a flat 35% tax on your earnings.

If you’re earning under about $200-250,000, an LLC-S will probably result in a lower overall tax bill for you.

But once you’re in the top tax bracket, adding in an LLC-C to your portfolio can help to provide tax relief. Moving money into the LLC-C gets it out of that top tax bracket and into the lower tax bracket that C Corporations enjoy.

An LLC-C can be owned by anyone, from anywhere. No more restrictions on residence or type of owners.

An LLC-S is a great choice if you expect losses in the early years. Those losses will flow through to your personal tax bill. In an LLC-C, they will stay stuck in the LLC-C until it has enough profit to offset the loss.

An LLC-C works really well if you want to ramp up company-paid medical benefits. This will continue, even after the new health care laws come into play.

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.

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