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Revision as of 13:55, 16 October 2024

Note: This writer is not really CPA or tax commercial. This article is for general information purposes, and should not be construed as tax points. Readers are strongly asked to consult their tax professional regarding their personal tax situation.

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Getting for you to the decision of which legal entity to choose, let's take each one separately. The most common form of legal entity is the corporation. There are two basic forms, C Corp and S Corp. A C Corp pays tax as per its profit for all seasons and then any dividends paid to shareholders likewise taxed. Hence the term double-taxation. An S Corp however works differently. The S Corp pays no tax on profits. The gain flows to the shareholders who then pay tax on cash. The big difference here i will discuss that the 15.3% self-employment tax does not apply. So, by forming an S Corporation, your business saves $3,060 for 4 seasons on money of $20,000. The taxes still applies, but For those of you someone prefer pay $1,099 than $4,159. That is a big savings.

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If you claim 5 personal exemptions, your taxable income is reduced another $15 thousand to $23,500. Your earnings tax bill is huge approximately 3300 dollars.

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10% (8.55% for healthcare and 6.45% Medicare to General Revenue) for my employer and me is $15,612.80 ($7,806.40 each), can be less than both currently pay now ($1,131.93 $7,887.10 = $9,019.03 my share and $1,131.93 $8,994 = $10,125.93 my employer's share). For my wife's employer and her is $6,204.41 ($785.71 my wife's share and $785.71 $4,632.99 = $5,418.70 her employer's share). Reducing the amount in order to a 3 or more.5% (2.05% healthcare 1.45% Medicare) contribution everyone for an entire of 7% for low income workers should make it affordable for workers and employers.

Now, I am hardly suggesting you go forth and pick up a life in law-breaking. Tax issues should be minor when spending amount of time in jail. Frankly, it is absolutely not worth it, but may be at least somewhat interesting and humorous to see how federal government uses tax laws to continue after illegal conduct.

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