How to go from sole proprietorship to incorporated

My accountant said if I was clearing $65000 after all expenses then I neede to inc. I did so and it has saved me a pile in taxes. Has some quirks that you have to get used to but worth it in the end.

 

Prolly depends on the personal and corporate tax rates in each state it varies no doubt.

 

State rates are secondary to the federal rates, I did it because I saved a crap load of money on federal taxes where it counts.

 

There is no corporate tax in an S corp. Your company profit (or loss) all flows through to your personal return via a schedule K-1 form. It's all personal income just like a sole prop, but with the added benefit of not paying so much in employment taxes to the federal government as a sole prop does.

 

Pretty sure we don't have those S Corps up here. Why would anyone use an S corp if you don;t get the benefit of the lower corp tax rate?

 

As far as I know, S Corps can be done anywhere within the USA. Personal tax rates are usually much lower than corporate tax rates so it's a good thing to file all your income as personal as opposed to corporate. Most people fall into the 15% personal tax group, others at 25, and after all your deductions usually have an effective tax rate much lower than that. I think the current corporate tax rate is about 35%, but I could be wrong on that.

The real tax savings with a S corp is in the employment taxes. Take, for example, a sole prop and an S Corp both making 72k/year profit after deductions. The sole prop pays 15.3% on that whole 72k ($11,016) in self employment tax. The S corp however can call 36k his wages, as shown on a W2, and only pay $5,508 in employment tax. The remaining 36k is called shareholder distributions and it's free of any employment tax. That's a savings of 5500 bucks. And, the more you make, the more that savings will end up being. You can set your W2 wages to whatever amount you want them to be as long as it's fair and reasonable.

 

Woahhhh really? When I said "up here", I meant ON. The corp tax rate is WAY, WAY less than the personal rates. IIRC it's under 18% for a corp on the first $300,000 in profit. If you were a sole prop here you would pay like $150,000 in tax on that $300,000.

 

Sorry, Rank. I totally glanced past the "50 miles north of" in your location and only focused on the Rochester, NY for some reason.

 

No, down here it is as @InmanFreight says, to save in self employment taxes, although there would be small costs in state unemployment insurance, but not significant as those are usually less than $10.00 a week.