c corp question?

Question

So I'm self employed and I get taxed up the ***. I went to a tax guy and he said I should set up a c corp because I would pay lower taxes. However, he said that I would not be able to spend any of my income, and that I'd have to live off of a second source of income, like my wife or getting a second job. I really didn't understand it. Does anyone know what he was talking about?

Answer 1

I think that you may be talking about an S corp. I won't try and explain what he was talking about because it may be different depending on the ownership type you form. Generally I discourage people from forming a S corp, LLC, Partnership, etc. without giving their situation a great deal of thought. Get a couple of opinions before you spend the money to do it. If you or you and your wife are the only people involved a sole proprietorship is normally much less complicated.

Answer 2

Find a new tax guy. This one is clueless!

First off, you'd rarely save money by forming a C-Corp. Most states levy a minimum tax on all corporations regardless of your income -- in CA it's around $800 if memory serves correctly. Even if you have a nice little money-maker going, corporate tax rates are likely to be higher than personal tax rates in most cases. On top of that you'll have fees and costs of making certain reports to the state where you are incorporated as well as a somewhat more complicated and expensive to prepare tax return.

What makes your "tax guy" a first-rate IDIOT is the comment about having to find some other means of support for yourself. If you form a C-Corp, you'll be an ordinary employee, pure and simple. You'd be paid wages or salary by the Corp and would get a W-2 at the end of the year to file with your tax return.

The corp would pay higher taxes over all, however, as it would have to pay Federal and State Unemployment taxes and may also be required to purchase Workers Comp insurance by the state. Neither of these would apply to a Sole Proprietorship.

The only benefits from forming a corporation are isolating yourself from personal liability for the actions of your business and the ability to bring on additional investors through the sale of stocks. Unless you are involved in a risky business and are likely to be sued OR are considering of going public with your business, there's no need to incorporate.

Get a new tax guy who knows what the hell he is doing. Yours might be able to prepare a simple return (though I'd question that to be honest) but he's a moron when it comes to corporations OR has ulterior motives, i.e. jacking up his fees which would be unethical by the way. In either case, you don't want to deal with this clown any more.

Answer 3

Standing to applaud another outstand answer by bostonianinmo!!!

Original poster that is a 50 star answer!!!