That depends on what you mean by "cheaper".
It is cheaper to prepare Form 1040 and not have to file corporate tax returns and pay CA a minimum tax of $800 each year.
But what about the self employment tax?
You pay less tax if your income runs through a corporation only in certain situations. It also depends if you have a C-Corporation or S-Corporation. C-Corps pay a corporate level tax. S-Corps pass all income to the shareholder(s)
The S/E tax, which is really Medicare and Social Security, is not paid on corporate distributions from an S-Corp. However, S-Corp owners are required to take a "reasonable" salary to pay these taxes.
So if your S-Corp only makes, say $25K a year, a reasonable salary might be 100% of that amount and it is all subject to SE taxes.
So if I pay myself $50k a year will I pay less "tax" self employed or as an employee....Remember as the corporation I am matching the employees share of tax as well.
Ont he other hand, if your S-Corp has a $250K income and you pay yourself $100K salary and distribute $150K as profits, then the $150K is not subject to SE tax.
Of course, the downside is that it lowers your base for making deductible retirement contributions which are based solely on the salary portion
Cheaper Is Relative
and I have some Cheap Relatives...
I have a small business with just my wife and I working
Of course, the less you pay in S/E tax, the lower your retirement benefit from SS.
I thought incorporating would make life easier, but when I look at all the filings required and the $800 for CA, I don't think it make a lot of sense or really saves me much.
Sometimes Simple is Better.
Can I pay myself every two weeks using a payroll service, than just file a 1040 at the end of the year?
But only if you are a corporation. You do not pay yourself payroll if you are a sole prop
So how do I pay myself?
in a sole prop?
You just transfer money from your business account to your personal account. That's it.
If I did not answer your question, please tell me so rather than saying OK and relisting it.
If you pay yourself a salary through your corporation and you pay yourself the full amount of your income, then there really is no difference in tax. By that I mean if the corporation has $50K income and you pay yourself a $50K salary, you will pay the same in total income tax and Social Security and Medicare taxes as if you were a sole proprietor and just had a $50K profit and paid your taxes at the end of the year for income and Self Employment.
The ONLY benefit comes is if your corporation has an income larger than your take home pay by a significant amount.
See my example above when the corporation has a $250K income and you only take a $100K salary.