Let's say you make a million dollar in W2 income and million dollar from your business. Total 2 million in pure profit/wages. What is best way to structure ?
If you go with C-Corp tax structure you lose almost half in taxes from job and no way to pass through losses from business.
If you go with sole proprietorship you get self employment tax slapped on and mixing the two makes total income way higher.
So, I am scared of setting up a wrong structure upfront which ends up costly later on.
So, should one get a:
- Sole proprietorship(pass through taxes)
- Limited Liability Company(pass through taxes)
- Limited Liability Company(Taxed as C-Corp)
- Inc(Taxed as C-Corp)
High W2 income starting a business- C-Corp or Sole Proprietorship?
byu/figureout98 intax
Posted by figureout98
5 Comments
Do you have a rough idea of expected profit/loss from the business for the first few years?
Are you going to have losses or profits? Your narrative is inconsistent, it says both.
If you are making $1M w-2 and $1M from a business, you hire a competent professional to advise you on both legal and tax structure.
Once you are over the SS wage cap, there really aren’t any tax reasons to be anything other than a sole prop, particularly if you are a “specified trade or service business”.
There may be plenty of other reasons to operate as other entity types.
S corp. Then work with a CPA on tax planning, reasonable wage, etc.