OWN YOUR OWN BUSINESS AND WANT TO INCORPORATE?
Wednesday, February 18, 2009 - posted by Hogers at 6:00 PM9 Comments
If you own your own business you will probably want to think about forming an LLC or S-Corporation for liability protection and tax savings. In certain cases, an LLC may make more sense if you have a complicated partnership and need flexibility with distribution of your earnings.
But for the rest of you, an S-Corporation is the way to go due to the savings you'll receive. As an S-Corporation, you're exempt from the double taxation from FICA (self-employment) taxes. If you work for a normal, big company, you pay 7.65% of your gross pay to FICA tax...which is basically taxes for Medicare and Social Security. While you pay 7.65% as an employee, your employer matches that 7.65% themselves.
If you're a business owner and are operating as a DBA (Doing Business As), then you're responsible for paying both the employee and employer portions. This amounts to 15.3% (up to around the first $100k) of your gross pay. That's a lot of money.
But if you incorporate your business, you can pay yourself a small fair-market salary. You can then distribute the rest of your company's earnings to yourself through the form of dividends. The dividend payouts are exempt from FICA tax, so you save 15.3% on that amount.
So, if you're shopping around for online incorporation services, check out www.S-Corp-Compare.com to find the best incorporation service. Prices range from about $250 to $600 to incorporate. But you'll easily recoup that cost in tax savings the first month you're incorporated.
But for the rest of you, an S-Corporation is the way to go due to the savings you'll receive. As an S-Corporation, you're exempt from the double taxation from FICA (self-employment) taxes. If you work for a normal, big company, you pay 7.65% of your gross pay to FICA tax...which is basically taxes for Medicare and Social Security. While you pay 7.65% as an employee, your employer matches that 7.65% themselves.
If you're a business owner and are operating as a DBA (Doing Business As), then you're responsible for paying both the employee and employer portions. This amounts to 15.3% (up to around the first $100k) of your gross pay. That's a lot of money.
But if you incorporate your business, you can pay yourself a small fair-market salary. You can then distribute the rest of your company's earnings to yourself through the form of dividends. The dividend payouts are exempt from FICA tax, so you save 15.3% on that amount.
So, if you're shopping around for online incorporation services, check out www.S-Corp-Compare.com to find the best incorporation service. Prices range from about $250 to $600 to incorporate. But you'll easily recoup that cost in tax savings the first month you're incorporated.
