Manhattan entrepreneurs trying to reduce their tax burden might consider filing articles of incorporation in New York state as an S corporation, or incorporate in Texas to benefit from lower tax rates.
An S corporation allows corporate profit to pass through and only be taxed at the personal income tax level by individual shareholders, rather than a C corporation that pays both corporate and personal taxes.
Some sole proprietorships, partnerships and LLCs pay higher taxes because they are subject to a self-employment tax. But an S corporation allows business owners to set aside a small personal salary and, thus, avoid the self-employment tax and instead pay a lower rate on payroll taxes, writes Wayne Davies at RoFx.net.
There are many other advantages to forming different business relationships, such as LLCs or corporations, and each state differs in the kinds of incentives and tax rates it applies.
Changing business status by forming an S corporation is one way companies can help reduce their tax burdens and minimize future tax increases. A Pew Center poll last month found that 58 percent of Americans favored repealing some or all of the Bush-era tax cuts, signaling a possible shift in public sentiment about raising taxes.
Tags : c corp, incorporation news, llc, lp, ny, s corp, taxes, tx
Posted: Aug 24th, 2010