A friend of mine has a question that I thought I'd start here with. in the 2013 year his business generated 220,000 in sales, and made approx. 110,000 in profit.. he is a 1-man operation.

he's telling me hes going to get taxed at 30$ paying nearly 41,000 in taxes this year.

would it benefit him going forward with this type of volume to change to an S-corp? and depreciate things against his business?

would like to help him out, as he didn't expect his business to boom the way it did.

thanks in advance

#1; guess it depends; of the many business entities that owners consider, mmLLCs and S-Corps are two of the most popular; An S-Corp is a corporation that has received the Subchapter S designation from the IRS. According to the IRS, S-Corps are considered by law to be a unique entity, separate and apart from those who own it.' This allows for a limit on the financial liability for which an owner (aka 'shareholder') is responsible. Nevertheless, liability protection isn't perfect. The plaintiff may be able to 'pierce the corporate veil' and go after your personal assets in a lawsuit. One of the best features of the S-Corp is the tax savings for you and your business. Recall that members of an mmLLC, partnership, are subject to employment tax on the entire net income of the business. Conversely, only the wages of the S-Corp shareholder who is an employee are subject to employment tax. The remaining income is paid to the owner as a 'distribution' which is taxed at a lower rate if at all!however, because of the one-class-of-stock restriction, an S corp cannot easily allocate losses or income to specific shareholders. Allocation of income and loss is governed by stock ownership, unlike a partnership or LLC where the allocation can be set in the operating agreement. Also, the necessary accumulated adjustment account can be cumbersome to maintain, requiring input from an accounting professional.


#2;as said, I guess it is not so simple.easy to say specific entity type is much better than the other or etc. Depending on both the current situation and future goals of the business, one business structure may be better than another.