Forming an entity can help business owners in two ways—there may be some tax advantage available for the S-Corporation owner, and psychological distancing yourself from your work. For income generated by personal services, a sole-proprietorship or partnership must pay Self Employment Tax on top of income tax. This can add an additional 15.3% tax burden above your regular tax. With an S Corporation, you can relieve SOME of this additional layer of tax (but not all), and it may be worth the trouble and expense of incorporating from a tax perspective. Psychologically, it sometimes helps owners to see that they work for a company separate from themselves, and to make business decisions “for the company” as an owner, rather than as a personal decision. It is difficult to get rich if you own a job. It is slightly easier if you make business decisions as if you were an investor in your own company. Other than the Self Employment Tax difference, there is less and less difference between tax on sole-proprietorships, LLC’s Partnerships and S-Corporations.
To assist with formations and dissolutions, we recommend Burnett and Associates out of Reno NV 877-836-9691 or contact Jason at Jason@BurnettandAssociates.com. Burnett also offers assistance with minutes and compliance needs to keep the entities operating properly.