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An S-Corp might be right for you if: Youre freelancing full-time. Youre an above-average earner in your city as a 1099 contractor (generally speaking this is probably $50k and up). You want to save money in taxes.
So, whats the tax benefit of an S Corp? The S Corp advantage is that you only pay FICA payroll tax on your employment wages. The remaining profits from your S Corp are not subject to self-employment tax or FICA payroll taxes.
As a rule of thumb, I usually recommend self-employed people save 20-30% of their earnings for Uncle Sam. This is about how much it takes to cover income and self-employment taxes.
Creating an S Corporation can potentially reduce self-employment taxes by allowing business owners to split their income into salary and distributions.
S-Corp distributions If you organize your business as an S-corporation, you can classify some of your income as salary and some as a distribution. Youll still be liable for self-employment taxes on the salary portion of your income, but youll just pay ordinary income tax on the distribution portion.
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Independent contractors in California are subject to a 15.3% tax, 12.4% for Social Security and 2.9% for Medicare. And since you are considered to be both the employer and employee by the IRS, this makes you responsible for paying the total tax amount, plus estimated taxes.
Form an S Corporation. Subtract Half of Your FICA Taxes From Federal Income Taxes. Deduct Valid Business Expenses. Deduct Health Insurance Costs. Defer Income to Avoid Higher Tax Brackets.
An S corporation is taxed in part at the level of its owners wages. By reducing the owners salary, the corporations taxes can be cut by thousands of dollars. Additional payments can be made to the owner through distributions a sort of periodic bonus plan without adding to the corporation taxes.

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