I am a 1099 Sole Proprietor, I am currently projecting 80K…

The decision to switch from a sole proprietorship to an S Corp is a complex one that depends on various factors. While both AGI and net income are relevant in determining whether to make the switch, there is no one-size-fits-all answer to the threshold for making the transition. One factor to consider is the potential tax savings. As a sole proprietor, you are subject to self-employment taxes, which include both the employer and employee portions of Social Security and Medicare taxes. As an S Corp, you can pay yourself a reasonable salary and take the remaining income as distributions, which are not subject to self-employment taxes. However, the salary must be reasonable and based on industry standards to avoid IRS scrutiny.

AGI is used to determine eligibility for certain tax deductions and credits, such as the deduction for IRA contributions and eligibility for the Child Tax Credit. Net income, on the other hand, is the amount of income you have left after deducting all allowable expenses. It is this net income that is subject to self-employment taxes. In general, if your net income is significantly higher than the salary you would pay yourself as an S Corp owner, it may be worth considering the switch. However, it is important to consider the additional costs and administrative burdens associated with operating an S Corp, such as the cost of payroll processing and additional tax filings. In your specific case, projecting a net income of $80k, it may be worth exploring the possibility of switching to an S Corp.

Net income is one of the factors to consider when determining whether to switch from a sole proprietorship to an S Corp. However, it is not the only factor to consider. As I mentioned earlier, it's important to evaluate the potential tax savings and administrative burdens associated with operating an S Corp. One thing to keep in mind is that S Corps must pay reasonable salaries to their owners for services rendered. So, the amount of net income that would be left after paying yourself a reasonable salary as an S Corp owner would be a relevant factor to consider. In general, if your net income is high enough that you would save a significant amount of money in self-employment taxes by operating as an S Corp, it may be worth considering.

Adjusted Gross Income (AGI) can be relevant in determining eligibility for certain tax deductions and credits, as well as determining tax brackets. However, AGI itself is not necessarily the primary factor to consider when deciding whether to switch to an S Corp.

When deciding whether to switch to an S Corp, the primary factors to consider are typically the potential tax savings and administrative burdens associated with operating an S Corp, as well as your individual business circumstances. As I mentioned earlier, if your net income is high enough that you would save a significant amount of money in self-employment taxes by operating as an S Corp, it may be worth considering.

Yes, the equations you provided are generally correct. The formula for Take-Home Pay you provided is a commonly used formula to calculate an individual's net income after taxes, deductions, and credits. The formula for Adjusted Gross Income (AGI) is also correct. AGI is calculated by subtracting adjustments to income, such as contributions to a retirement plan or student loan interest payments, from your total gross income.

The formula for calculating taxable income is correct as well. Taxable income is calculated by subtracting either the standard deduction or itemized deductions and personal exemptions from your AGI. The formula for calculating income tax liability is also correct. Income tax liability is calculated by multiplying your taxable income by your tax rate and then subtracting tax credits.

It's worth noting that tax rates are tiered, meaning that different portions of your income are taxed at different rates. So, your effective tax rate may be lower than your highest tax bracket.