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David M. Kaufmann, CPA
7200 S. Alton Way,
Suite B-195
Centennial, CO 80112
Voice: 720.493.4804
(toll-free) 800.326.6686
Fax: 303.796.7768
(toll-free) 888.326.6686
Email:
contact2@kaufmann-cpa.com |
Facts:
A client starts a new business. Sales might exceed
$1,000,000 at the end of the second year. The business has a slim profit margin.
The client wants my help with an S Corporation that he
wants to form.
Problem:
The client wants to keep most of the income in the
business to boost growth. If the client uses an S Corp, the S Corp's income will
be taxed on his Form 1040, but the S Corp will not be distributing him any cash.
He will not be able to pay his taxes on April 15.
Solution:
The corporation should be a C Corporation. For low levels
of income, the corporation is taxed at a very low rate. Distributions to the
shareholder can be in the form of dividends that are only taxed at 15%.
LLC? Using an LLC is not a tax decision. Single member LLCs
can be either taxed as Schedule Cs (sole proprietorships), C Corporations or S
Corporations. WARNING:
This is a complicated decision. Tax professionals often use
software like the
C Vs. S
Corporation Analyzer or the
S
Corporation Vs Partnership/LLC/Sole Proprietorship Analyzer. |