💼Choosing the right business entity can save you thousands in taxes.
💰Pass-through entities like sole proprietorships, partnerships, and LLCs are subject to self-employment tax.
💼C corporations are subject to double taxation.
💰S corporations offer tax benefits but have salary requirements.
💼LLCs provide liability protection but have no additional tax benefits.
What is the difference between a legal entity and a tax entity?
—A legal entity is the entity you register with your state, while a tax entity is the entity you elect to file as with the IRS.
What is pass-through taxation?
—Pass-through taxation means that all income your business receives passes through to you personally for tax purposes.
What is double taxation?
—Double taxation occurs when a C corporation is taxed on all profits before payments to owners, and then the owners are taxed on the payments they receive.
What is self-employment tax?
—Self-employment tax is an extra tax on your income used to fund programs like Social Security and Medicare.
What is a reasonable salary for an S corporation owner?
—A reasonable salary is based on factors like your training and experience, or what you would pay a non-shareholder employee to do the same job.
00:00Choosing the right business entity can save you thousands of dollars in taxes.
02:33:00Pass-through entities like sole proprietorships, partnerships, and LLCs are subject to self-employment tax.
06:23:00C corporations are subject to double taxation.
07:59:00S corporations offer tax benefits but have salary requirements.
09:01:00LLCs provide liability protection but have no additional tax benefits.
