Posted by raelynn mitchell on December 15, 1998 at 15:58:52:
on your personal situation. He is right, S Corps are reported to the IRS on your 1040. C Corps use Form 1120. But there are advantages to using a C Corp as well. S Corps “flow through” to your personal return and/or income. C Corps are separate, do not flow through. But C Corps are taxed at 15% for the first $50,000 or so, and C Corps can deduct as ordinary expenses things that S Corps must show on a personal return–and therefore are sometimes limited.
Another way of looking at this is, you (the individual) are taxed on INCOME. But a corporation is not. It is taxed on PROFIT. And that is AFTER expenses are deducted. For instance, there are limits on the health costs that you can deduct. A corporation doesn’t have those limits most of the time, but if it flows through to you it might be limited by YOUR ability to deduct these items.
C Corporations filed in Nevada can also be a benefit to someone who may have a tax problem and is preparing for facing the IRS with an Offer in Compromise, however this is a highly specialized area and you MUST seek the best specialist you can find if you have this problem. In Nevada, the shareholders are NOT required to be revealed to anyone, thus the ultimate in anonymity.
Another neat thing about corporations: 1099s are not required if there are services provided from one company to another. An independent contractor person not incorporated gets a 1099. You could theoretically work for a corporation exclusively, at say $10/hr., and someone wishing to hire you may be willing to pay $25 or more (the going rate for your services, depending on what those services are). They are required to hire the corporation in order to get you, you the individual gets the $10/hr, has deductions on the $10/hr., and the payroll tax is calculated based on $10/hr. The other $15/hr? Maybe it’s spent on expenses required in the running of the business, maybe not. But the payroll taxes are less.
Whatever you do eventually decide, be sure to visit www.legalwiz.com and check out the list of things to do to be sure to get sued. It’s a definite “what NOT to do” list.