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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I am currently unemployed, but starting next week I will be

Customer Question

I am currently unemployed, but starting next week I will be working as an independent contractor for a company with a monthly retainer of $7,000.00. What is the best form of business that I should use in regards XXXXX XXXXX federal income tax requirements, and how do I prepare tax forms both in frequency and type for this business form.
Submitted: 4 years ago.
Category: Tax
Expert:  Megan C replied 4 years ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question. You should consider an S-Corporation for your new business. It's a pass through entity, meaning you will be taxed at your individual level although you will have some benefits over being self-employed as a Schedule C.

The biggest thing is that you will pay yourself a 'reasonable salary' in which case you will owe FICA taxes on. In the case of a Schedule C, you would pay self employment taxes (which are FICA taxes) on 100% of profit.

With the S-Corp you will file an 1120-S informational return, and that will generate a Schedule K for your personal tax return. You will also file 940 and 941 returns annually and quarterly for your payroll to yourself.

Non-salary distributions from the S-Corp would then be taxed as a dividend, which is still at your ordinary income tax rate but no self employment taxes would apply.

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