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After listening lesson 19 of “12 Step” I wonder what is the difference between following ways to deduct business expenses:
1. Filing 1040 tax return with Schedule C in it,
2. Filing two returns – 1040 personally and 1120S for S-Corp.What are advantages and disadvantages of each way?
Thank you,
Alex Bravoif you are an scorp filing 1120S you only have to pay 15.3% social sec/medicare on the amount you actually pay yourself the rest of the net income will be subject to just the fed tax. just make sure you do pay yourself a resonable salary dont try and avoid all the employment tax.
if you are a sole proprietor you will have to pay self employment tax on all net income
also no liability shield with a sole proprietor
disidvantage is that extra tax return 1120s costs money to have prepared and some states have minimum tax that must be paid and annual filing fees
i do like the scorp because it is like having another person which has its own tax id number to build credit and borrow money almost like having another partner with which to do deals with.
Joe M
Thank you Northern Residential for your reply.
Let’s say you have a single-member LLC, which you can classify for tax purposes either as sole proprietor or as S-Corporation. So from liability point of view it’s the same.
And that LLC doesn’t have any self-employed income – it’s all rental income. Then self-employment tax also doesn’t matter.
In this situation are there any advantages of filing separate 1120S?
Alex
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