Did you know an S Corporation may be the right corporate entity for a high wage earner or self-employed individual in San Diego and Southern California?
If you are forming a company that is basically “You, Inc.” and you expect to earn more than $100k then you should give serious consideration to an “S Corporation.” An S Corporation or “S Corp” provides a legal business vehicle that allows you to conduct business and protect your personal assets while reducing the associated tax burden on a large portion of your income when compared to an LLC.
Let’s use round numbers of $200k in income and 10% state income tax to make things easy. If you make $200k in an LLC it all flows directly to you as income, and you will pay federal and state taxes on the full $200k, including (in this case) $20,000 in state taxes. With an S Corp, you would pay yourself a salary (say $50,000) and give yourself a “distribution” of the remaining $150k which is exempt from state taxes, saving you $15,000 a year in this hypothetical example.
Recent tax changes provided additional financial and tax-based incentives. For these and many reasons, an S Corporation may be the right corporate entity for a high wage earner or self-employed business person.
The numbers will be different for each entity based upon the type of business they are conducting and the nature of their corporation, but the choice of your business entity, LLC or S Corporation in this example, will make a substantial impact on the protections you receive as well as the tax burden that is established by any resulting income.
An S Corporation may be the right corporate entity for a high wage earner but is it the right solution for you? How do you transition an existing LLC, C-Corporation or other entity to an S Corporation?
The attorneys at the Watkins Firm have helped thousands of San Diego businesses over the course of the decades we have served the local business community. You have the opportunity to connect with that vast resource of experience and expertise to maximize the likelihood of success for your own business.
We invite you to review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today. We will discuss your new business venture, and the pros and cons of each business entity as it relates to the business you intend to create.
