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How Do I Chose The Right Entity When Setting Up My Business, S-Corp Or C-Corp?

C Corporation S Corporation
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Kazim Qasim, EA, CTC
Most business owners and professionals start out as a sole proprietor, then go on to establish a limited liability company or a corporation. But which type of corporation is the right choice? Should it be a “C” corporation (for employee benefits) or an “S” corporation (for minimizing employment tax)?

Limited liability companies can be even more complicated, because you must choose whether to pay tax as a sole proprietor, a partnership, a C- corporation, or an S-corporation.

Choosing the wrong entity can waste thousands in unnecessary taxes every year. For example, if you’re operating as a sole proprietor when you could take advantage of S-corporation status, you’ll pay substantially more into a Social Security system that you probably aren’t counting on to finance your retirement.

In contrast, you might be losing thousands in employee benefit deductions by operating as an S-corporation as opposed to a C-corporation. Then again, you might even be best-served by establishing more than one entity—like an S-corporation to minimize employment taxes and a C- corporation to maximize employee benefits.

Complicated? Unfortunately, yes. But knowing the rules and using them to your advantage will lead to saving thousands of dollars each and every year.
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