Contact UsAt what gross income level is it tax effective to file Sub Chapter S as opposed to Schedule C?
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Wray Rives CPA CGMA
It is impossible to completely answer this question, without knowing a lot more information about your particular tax situation, but there are costs and overhead with operating a S-corp compared to a sole proprietorship.
Some of the more significant ones include:
1. Cost to incorporate or form an LLC which can vary by state (On average we charge $550 for most states to give you a ball park)
2. Cost to file a separate 1120S tax return each year. My firm charges in the range of $300 for a fairly simple 1120S
3. Cost to file a state franchise and/or income tax return (If there is only one state return, we will typically include that in the $300 from #2
4. Cost of state franchise and/or income tax on the S-Corporation. Almost every state will have some amount of franchise tax or fee and some states will also tax the income of the S-Corp. Because every state is different there is no way to give you a ballpark estimate on this.
5. Cost of running a payroll for the S-corp owners. You are required to pay yourself a reasonable salary assuming you the owner are working in the S-Corp. (We charge $25 per month for DIY payroll or $100 per month for full service payroll for the first five employees. There are some restrictions see http://rivescpa.co/?page_id=69 for details)
6. Unemployment tax-you will have some amount of unemployment tax on your salary that you likely are not paying as a sole proprietor. (Usually this is not a huge number, but it is an added cost)
The biggest benefit to an S-Corp compared to sole proprietorship is the ability to take a reasonable amount of earnings out of the S-Corp as investment income which is not subject to self employment tax. There are some other smaller tax advantages, but the SE tax is typically the big tax saver. So you need to save enough in SE tax to more than cover the additional costs listed above.
Every situation is unique and are best discussed with a tax professional individually. I will say that most of my clients don't seriously consider it until their net profit from the Schedule C business is in the $50K to $100K range.
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619 weeks ago
Some of the more significant ones include:
1. Cost to incorporate or form an LLC which can vary by state (On average we charge $550 for most states to give you a ball park)
2. Cost to file a separate 1120S tax return each year. My firm charges in the range of $300 for a fairly simple 1120S
3. Cost to file a state franchise and/or income tax return (If there is only one state return, we will typically include that in the $300 from #2
4. Cost of state franchise and/or income tax on the S-Corporation. Almost every state will have some amount of franchise tax or fee and some states will also tax the income of the S-Corp. Because every state is different there is no way to give you a ballpark estimate on this.
5. Cost of running a payroll for the S-corp owners. You are required to pay yourself a reasonable salary assuming you the owner are working in the S-Corp. (We charge $25 per month for DIY payroll or $100 per month for full service payroll for the first five employees. There are some restrictions see http://rivescpa.co/?page_id=69 for details)
6. Unemployment tax-you will have some amount of unemployment tax on your salary that you likely are not paying as a sole proprietor. (Usually this is not a huge number, but it is an added cost)
The biggest benefit to an S-Corp compared to sole proprietorship is the ability to take a reasonable amount of earnings out of the S-Corp as investment income which is not subject to self employment tax. There are some other smaller tax advantages, but the SE tax is typically the big tax saver. So you need to save enough in SE tax to more than cover the additional costs listed above.
Every situation is unique and are best discussed with a tax professional individually. I will say that most of my clients don't seriously consider it until their net profit from the Schedule C business is in the $50K to $100K range.