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Subject:  Re: S-Corp or Sole Proprietorship? Date:  12/21/1998  6:43 PM
Author:  TMFTaxes Number:  7439 of 129252

[[I am exploring an opportunity to become a 1099 consultant. For a tax purpose,
what is a real difference between sole proprietorship and S-corp?]]

Got about three hours???

[[ Specifically, in
case of S-corp you can pay yourself a modest salary and receive the rest as
distribution, not taxed for Social Security purpose.]]

That is certainly correct. It's called beat the FICA tax system by using an S-corp. But the "modest" salary better be at least $25k, and should be closer to $30k in order to avoid the wrath of the IRS.

[[ Is this available for

Nope. As a Sch C filer, you'll pay SE taxes on your net earnings from self employment. The whole enchalada.

[[ Also, selfemployed can deduct 1/2 of selfemployment tax.]]

And the corporation will be able to deduct the corporation contribution of the FICA taxes paid via the corporation payroll. So you are on basically the same playing field there.

[[ Anything similar for S-corp? Maybe other consultants on the board can point
out other issues.]]

There are many, many more of them. I would NOT make this decision without some professional assistance. At a MINIMUM, some substantial additional reading. You really need to know what you are getting into here before you jump in with both feet. The decision regarding a "tax entity" is complicated and delicate. It's not as easy as most people think.

So if you want the additional information, you'll need to get to know both the Sch C and also the S-corporation. You can read more about Sch C in IRS Publication 334. You can read more about the S-corporation issues in IRS Publication 589. And I would suggest that you read these publications at a minimum. If you want to move forward from there, you can visit your local bookstore and browse the stacks for various books (there are a number of them) that deal with the "tax entity" issues, that compare and contrast the various entities.

Hope this helps...
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