best tax entity for self employed?

Question

I am starting a website that I plan to make some money of off. How much? I am not really sure. But I do not want it to contribute to my personal income because I am already getting taxed up the you know what on that. I know there are certain entities where you can get taxed less. Perhaps a S or C corp?

Also, I want my personal money/assets to be protected should I be sued for anything involving the website. It's going to be a clean site, I just am very cautious.

Answer 1

For a C-corp, profit/losses remain with the company. You can own the company, but the only way you can get money from the company is to either borrow from the company, which you have to pay back, or take dividends from the company. Dividends are not deductible to the company, but are taxable to you. The good news is that if they are qualified dividends, they are taxed at maximum of 15% (5% if you are in the 10% or 15% tax brackets). Tax rates for C corp are generally higher than for a person.

S-corp profits/losses, deductions/credits pass through to the owners via a K-1 and are taxed at your tax bracket. You can put yourself on the payroll for the S-corp and if the payroll amount is "reasonable" then any profits that pass through to you on the K-1 will not be subject to Self-employment tax.

Answer 2

Youj want to make money from this, but don't want it to contribute to your personal income? Kind of a contradiction, isn't that?

Profits from an S-corp would just pass through to your personal return, plus you'd have the added expense of setting it up and preparing tax returns for it. That can help toward protecting your personal assets though.

Answer 3

You make money, you are going to have to pay taxes. S-Corp will prevent all earnings from being taxed as self-employment earnings, but you better take out a reasonable salary for your position. The IRS will not allow you to completely avoid the SS&med taxes.