Author Topic: What's the most tax-advantaged business entity for this case?  (Read 764 times)

GetSmart

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For a new business what would be the most tax-advantaged entity to file under?

Currently assuming this would be a pass-thru (professional services) business filing Schedule C with very few deductions. 

Will be contributing the max to an i401k (no employees) 19k + 6k (over 50 y.o.) plus 20% of the net profits.

For simple math letís assume this business makes 100k net profit after expenses
- 25k contribution to 401k (19k + 6k employee contribution)
- 20k (20 % of 100) for employer contribution
- 14 k SE taxes
-  fed tax ?
-  state tax?

Is there a spreadsheet around that could be used for different scenarios to see whatís best ?

I realize there isnít a simple yes/ no answer, but this business is unlikely to gross more than 100k in the first year and it is unknown whether it will continue or how long it will exist.

So initially it doesnít seem to make sense to go to the expense of setting up an S-corp given the unknown future viability of it.

Other options ?

walkwalkwalk

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Re: What's the most tax-advantaged business entity for this case?
« Reply #1 on: April 22, 2019, 02:42:13 PM »
Depends on what the reasonable salary for something like this is. I would say if the reasonable salary is near 75k (75k gross, so in your case 50k with 25k 401k) or higher then I would agree that it would not save very much to do S-corp. Then just stay Schedule C and do the i401k to the max.

SeattleCPA

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Re: What's the most tax-advantaged business entity for this case?
« Reply #2 on: April 23, 2019, 05:30:07 PM »
Assuming you aren't in California but someplace that'll let you form an LLC economically,  I'd set up an LLC and allow it to be treated as a disregarded entity until an  S corporation makes sense.

Tip: You can use an LLC and have it treated as a sole proprietorship for years you're ramping up. If at some point you want to use the S corporation gambit, you can elect to have LLC treated as an S corporation.

P.S. Here's blog post I did for MadFIentist:

https://www.madfientist.com/s-corp/

gwhunter

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Re: What's the most tax-advantaged business entity for this case?
« Reply #3 on: April 24, 2019, 09:32:59 AM »
Assuming you aren't in California but someplace that'll let you form an LLC economically,  I'd set up an LLC and allow it to be treated as a disregarded entity until an  S corporation makes sense.

Tip: You can use an LLC and have it treated as a sole proprietorship for years you're ramping up. If at some point you want to use the S corporation gambit, you can elect to have LLC treated as an S corporation.

P.S. Here's blog post I did for MadFIentist:

https://www.madfientist.com/s-corp/

@SeattleCPA Are you still offering the "promo code" for the free copy? 

FatFI2025

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Re: What's the most tax-advantaged business entity for this case?
« Reply #4 on: April 25, 2019, 05:34:12 PM »
Have you checked out this new calculator from intuit?

https://proconnect.intuit.com/tax-reform/entity-selection-calculator/

Curious if others have opinions on accuracy. I wasn't sure if the SEP/Simple/qual plans field is treated the same as a Solo 401K or DB plan.