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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10117
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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As a sole proprietor, what do I need to do to become a

Customer Question

As a sole proprietor, what do I need to do to become a corporation how would this affect my taxes?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.
Hi,There are essentially 2 tyoes of corporations (an S-corp and a C-Corp) How much do you know about the differences there?
Expert:  Lane replied 1 year ago.
OK, still don't see you coming into the chat I'll answer generally.The first step is filing the appropriate articles with the secretary of state in your state, to be a corporation OR an LLC.In MY opinion LLC is a good place to start (provides the corporate liability of a corporation with the flexibility of a sole-proprietorship (or partnership if there are two or more owners)...Next, you decide how you want to be taxed ... a C-Corporation pays it's own taxes (at corporate rates - files an 1120) ... an S-Corporation does not pay taxes, but (like a partnership) passes the income or losses to the owner through a K-1 that is used to report the losses on the owners 1040 (SOMEWHAT similar to how the schedule C is used to report income or losses from your sole proprietorship on your 1040 now)
Expert:  Lane replied 1 year ago.
One problem with the C-Corp, is double taxation, becasue once the corporation is taxed at corporate rates on it's form 1120, if dividends are paid to the owners, then there is a 1099-Div and the indiviidual is taxed AGAIN at personal rates on the 1040.
Expert:  Lane replied 1 year ago.
Bot***** *****ne? (not knowing more about your business, ot what you're trying to accomplish) (1) LLC's owners pay taxes on their own return much like a sole proprietor or parnet in a partnership ... no difference in the tax amount (But there is that corporate protection).(2) S-Corps are ALSO passthroughs (K-1 rather than a schedule C) but come with much more administrative overhead - must pay yourself a salary, must do payroll taxes, must pay in to social securiity at least monthly ... and unless you are so hiighly profitable (above what your regular expenses and the required corporate salary is) there is no tax benefit. There CAN be some savings in social securty and medicare levels of HOGH levels of profitability.And (3) with the C-Corp, you have all that same overhead AND double taxation on the dividends as well As far as filing goes?, you can start wiith either a Corporation or LLC with your secretary of state and can then ELECT to be taxed as EITHER an s-corp (form 2553 with IRS) or a C-Corp (form 8332 with IRS) ... and if you start out as a corporation with your secretary of state and do nothing else, you WILL be taxed as a egular C-Corporation, by default. Hope this helpsLane
Expert:  Lane replied 1 year ago.
If this HAS helped, I would appreciate a positive rating (using the stars or faces on your screen) That’s how I'm credited for the work here. let me know if you have questions ...
Expert:  Lane replied 1 year ago.
Hi,
I’m just checking back in to see how everything’s going.
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Let me know…
Lane

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