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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Hello, I am a private music teacher with approximately 25 ...

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Hello, I am a private music teacher with approximately 25 students that visit my home each week. I was successful in figuring out last year how to calculate income for being self-employed, deducting expenses (including usage of that room, utilities, etc.), and filing all the appropriate forms. My question is would it be advantageous to form an actual business? I would have to apply for a business license with the city of Las Vegas and establish a separate banking account, etc. Are there any tax advantages to doing it this way rather than reporting as I did last year?


Since you have indicated that you are familiar with the basic income reporting for self employment, then you must know that in addition to state and federal income taxes, you also pay the total cost of social security and medicare insurance on your net business income, which combined is currently 15.3%.

You could save some of those tax dollars by making your business a single employee "S" Corporation. With an S Corporation, the profits flow through to the shareholders (which would be you), and are not taxed at the corporate level. With an S Corporation, you still deduct your business expenses from the corporations income. You also pay yourself a reasonable salary. But the rest you can take as income through cash distributions as dividends. You still pay federal and state income taxes on the dividends, but you do not pay the self employment taxes.

It just really depends on how much income you are making from this business as to how much savings this might be to you, but if your income from the business is substantial, you could save 15.3% on any of the income that you classified as dividends in the S Corp.

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