“My recruiter recommends that I set up an S-Corp. I expect to generate between 150K to 200K in revenue this year and receive an offer as an employee next year. Does it make sense for me to set up an S-Corp for a year? “---> I guess it s hard to tell easily; it depends on situations. An S corporation, for US federal income tax purposes, is a corporation that makes a valid election to be taxed under Subchapter S. In general, S corporations do not pay any federal income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders .A small business or even a sole proprietorship can be registered as an S corp. Doing so can help protect you from personal liability when it comes to business debts and obligations. An S corporation does not pay taxes. Instead the profits or losses are distributed to the shareholders who then pay the taxes as individuals. S corps have many benefits of both being a corporation and of being a small business. It is best to consult with a good business attorney. If you own a business that operates as either a sole proprietorship or a partnership--rather than as a limited liability company or corporation, then, you are legally liable for all the debts of the proprietorship as an owner of the business. Specifically, no matter what happens, in some cases no matter who is at fault, no matter what the amount, you are liable. In addition to the income taxes you pay on your business income, you also pay a second heavy tax on all your business profits, the self-employment tax.Many small business owners, in fact, pay more in self-employment taxes than they pay in federal income taxes.In a worst-case scenario, you could lose almost everything you have.However, you can often fix both problems easily, quickly, and often inexpensively by setting up a limited liability company and use it to run your business. This largely solves the unlimited liability problem. A LLC, means you aren't liable for the debts and obligations of the business merely because you own some or all of the business. For example, an llc with a single owner can be a sole proprietorship; you can use a quirk of recent tax laws to have your LLC taxed as a small business corporation by making a subchapter S election. You can pick the tax treatment that saves you the most taxes--often times, thousands of dollars a year in self-employment taxes if you elect to have your LLC treated as an S corporation. Since you're starting a new business or if you operate an existing business, you must investigate either theLLC option and the subchapter s election you can make for your LLC.
“Are there any advantages over a sole proprietor besides saving on self-employment taxes?”---->You, as a shareholder of S-Corporations, do not pay Self-Employment Taxas long as you are actively engaged as a shareholder-employee of the S-Corporation. You are paid a salary, with yourr wages reported on a W-2 and with FICA Taxes already withheld. You will therefore receive two tax documents from the S-Corp: a W-2 wage statement and a Sch K-1 statement. You are taxed on your wage income and on any profits distributed by the S-Corp. These profits are taxed as ordinary income instead of the more favorable qualified dividends tax rate. Dividends are a distribution of corporate profits to shareholders, but a qualified dividend has already been taxed at the corporate level, so a qualified dividend is taxed at a preferential tax rate on the individual tax return. S-Corp profits, however, have not already been taxed, and so you will be taxed as ordinary income on your tax return. Because you, as a shareholder-EE, receive both wages and profits from the S-Corp, there is a strong temptation to pay a lower salary and a higher profit distribution. Profit distributions, however, are not subject to FICA payroll taxes; they are subject only to your income tax rate. So all things considered, you will have a strong preference to pay yourself a minimal salary and thereby increase the profit distribution. The IRS is fully aware of this situation, and they are actively seeking out S-Corps paying out below-average wages. The IRS has said over and over again that S-Corpos must pay their shareholder-employees a reasonable compensation for services rendered to the company.
“In NYC, is there an additional ~8% tax for S-Corp?”---> Like a C corporation, an S corporation is generally a corporation under the law of the state in which the entity is organized. S corporations are separate legal entities from their shareholders and, under state laws, generally provide their shareholders with the same liability protection afforded to the shareholders of C corporations. For Federal income tax purposes, however, taxation of S corporations resembles that of partnerships. Some states such as New York and New Jersey require a separate state-level S election in order for the corporation to be treated, for state tax purposes, as an S corporation. If the S Corp sells services that are subject to sales tax, the corp has to obtain a certificate of authority to collect sales tax prior to doing any business. You absolutely have to file sales tax returns quarterly, even if there is no sales tax to remit. This is true forever, until the certificate is surrendered, or until New York gives you permission to file annually. Sales tax is completely separate from income tax and not paid through estimates. NYC does not recognize federal or NYS S Corp elections. S Corps are subject to NYC General Corporation Tax.
Please visit the Website here:
http://www.nyc.gov/html/dof/html/pdf..._tax_rates.pdf
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