[nanda_ibsn]

Hi Folks -

I have a question for you :confused: . Can you please tell me which entity is best for a salaried employee? Would your answer differ if I ask 'which entity is best for a self-employed individual, say a sole-proprietor?

Please post your responses asap.

Regards,
Nanda :)

[plonak]

I would say an S-Corp, it avoides double taxation and still has benefits of a c-corp, like being able to issue stock (but not much).

You don't need a C-corp, because it's just you and you don't want the double taxation.. and LLP's are mostly for professional serivce businesses like doctors and accountants and such..

S-corp is the best bet... I work at a CPA firm and I'm studying for my CPA now, hope that helps!

[nanda_ibsn]

Thank you Plonak :)

But Most businesses cannot distribute all their net income currently. Often, the funds need to stay with the company as working capital, to maintain inventory, or for plant improvement, among other reasons.

In a C corporation, undistributed profits are taxed at the corporate level. In an S corporation, all the income is passed through, thereby increasing shareholders' personal income and tax liability. Both C corporation income and income passed through to the shareholders are taxed at a maximum rate of 35%.

Here is a very easy example:

A and B are married and are the only shareholders of C Inc. In 2005, their personal taxable income is $45,000, and the corporation's taxable income is $50,000.

If the corporation's income is not distributed, their personal marginal tax bracket will be 15%, and the corporation's income will be taxed at 15%. Their individual tax will be $6,020and the corporate tax will be $7,500, a combined tax of $13,520.

If the corporation were an S corporation, there would be no corporate tax. The S corporation's income would pass through to A and B, who would have taxable income of $95,000 ($45,000 + $50,000). Their marginal tax bracket would be 25%, and their tax would be $17,080.

The lower brackets are not available to C corporation personal service corporations [Section 11(b)]. Thus, a personal service corporation pays tax at a flat 35%.

How do you defend this?