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Robert should incorporate the business. Additionally he should make an S election for the corporation. There are some tax benefits to this structure that are in addition to the legal benefits related to liability. The biggest tax benefit is the difference in self-employment tax.
Under the sole proprietorship option the SE tax is 15.3% of the first $106,800 and 2.9% of the remaining income for a total of $18,318.20.
Under the S corp option the SE tax is $13,770 1/2 of which is paid by the corporation.
The income is reported on different schedules. But will result in the same regular tax under both scenarios. The biggest difference is the SE tax which is $4,578 less under the corp structure.
The only other consideration is that you are in Texas. Texas does not tax individuals. I believe they do have some kind of business tax on corporations.
Hi Brenda. The answers I'm looking for a for a, b, c d, and e. Which one are you aswering here?
I am answering e. a,b, c, and d do not consider the S corporation. This is a structure that I use often. Your other questions seem to refer to comparison to a regular corporation. That is never going to be a good answer for you in the long term as it will cost you much more with a regular corp as you will be double taxed. I think the only 2 options are stay a sole proprietorship or incorporate with an S election.
Another thought - you said Robert is in Ohio in the text and list Texas as the state below. Ohio tax laws will the the tax laws that are applicable, not Texas.
This is not anything personal. This is a school assignment.
Are you there?
You should do you own homework