TAX CONSEQUENCES: COMPARING TAX RETURNS

TAX CONSEQUENCES: COMPARING TAX RETURNS

One of the most important things you can do when starting up your business is to get the structure right the first time. Now that we have covered the types of legal corporate structures, let me show you the tax consequences for the same income on different types of returns.

Using a net profit figure of $22,371 (I used this figure because a tax client of mine had this exact figure on his return last year), I have translated that same amount to an S Corporation, a C Corporation, and a Sole Proprietorship. Let me show you the tax difference:

Based on this example, I’m sure you can now readily see the benefits of incorporating your business. Now, you cannot always assume that just because the tax consequence might be lower that an S Corporation is the way to go. A C Corporation provides protection of assets that an S Corporation never will.

If you have a small business, or are contemplating starting one, then an S Corporation will probably do the trick until you burst at the seams from growing pains. You can always reorganize and change your corporate structure. And, the cost of incorporation is so small that it would be foolish to ignore this or put it off.

All examples used in this chapter reflect my home state of Florida, City of Tampa, and county of Hillsborough. Just remember this: As long as you do not have a store front, you can incorporate in whichever state you like, whether you are doing mail order, internet sales and the like. Cruise around and see what individual states charge in the way of incorporation fees.