Evaluating Which is Best: S Corp vs C Corp vs Sole Proprietorship?

[catholicbiblio]

Anyone have a good compare tool? I'm looking for a spreadsheet where I can put my info in so I can get a ballpark on pontential income structures. It's not my first tax rodeo, been 1099 for most of my life and am exploring "loan out" models. I would be the only employee of the business.

I would like to compare what my take home would be in different scenarios.

I know what the gross income is, I know what my expenses are, and I know what my reasonable salary for that is. I'd love to be able to see how that breaks down if there is profit or dividends and what the tax rate for that would be in different corporate structures.

A tool that is stupid basic like (I tried to =sum in here and was bummed it didn't work):

S Corp
C Corp
Sole

Gross Income
X
X
X

Expenses (not taxes)
Y
Y
Y

Reasonable "Salary"
Z
Z


Payroll Tax
A
A


Profit
X-Y-Z-A=B



Dividends

X-Y-Z-A=C


Tax on Profit/Dividends
B*Tax=T
C*Tax=T


AGI
Z+B-T=ZBT
Z+C-T=ZCT
X-Y

Standard Deduction
SD
SD
SD

Taxable Income
ZBT-SD=Ti
ZCT-SD=Ti
X-Y-SD=Ti

Total Fed Income Tax
Ti*BracketTaxRate
Ti*BracketTaxRate
Ti*BracketTaxRate

Total Sate Tax
Ti*StateBracketRate
Ti*StateBracketRate
Ti*StateBracketRate

Take Home
AGI-Taxes
AGI-Taxes
AGI-Taxes

 

[freedawg]

@catholicbiblio LLC elect S. Been in this game a long ass time (all 1099-based), it’s the best structure.

 

[family1stdad]

@freedawg There are definitely times a S Corp is good, and definitely times a S Corp is bad. Anyone saying that the S Corp is best without crunching the numbers doesn't fully understand the multiple things that need to be considered.

 

[justme1956]

@catholicbiblio Do you have an accountant? All of that is so over my head that I just asked mine to guide me. He knows my finances so it wasn’t complicated for him to figure it out.

Edit: much respect to you for taking the time to learn this though. Very impressive.

 

[simon129]

@catholicbiblio Most important advise I can offer is to consult with your accountant. They can make a better suggestion and you can share your business details.

 

[valueofliving]

@catholicbiblio Is this a hobby business without much revenue and very little chance of being sued? Then you can do while proprietorship. Otherwise it is worth it to incorporate.

Next the question is not about the money. S corp has pass through taxation and C corp has double taxation. The question is about ambition not revenue amount. Is the plan to grow quickly and sell the business 5 years later? Then worth understanding if you qualify for qsbs and the decision is become a C corp. If you plan to take institutionalized investment them you need to be a C corp. If any of the owners is a non US person you need to be a C corp.

A company that makes a profit and makes distributions will always have to pay more as a C corp than as an S corp. If you eliminate the profits because the money is going to growth then you don't care about the pass through taxation. And then you need to see if QSBS is interesting to you. You can always elect to switch between the two so if you don't have something driving you to be a C corp like you don't qualify or having QSBS ambitions then be an S corp and pay less taxes.