CAPS Accounting

🚨 IMPORTANT FOR BUSINESS OWNERS 🚨

Sole Proprietor vs. LLC (S-Corp Tax Election)

Deciding between a sole proprietorship and an LLC taxed as an S-Corp can significantly impact your tax liability. Here's a side-by-side comparison:

1. Sole Proprietorship:
- Total Income: $150,000
- Self-Employment Tax: 15.3% of $150,000 = $22,950 (half deductible)
- Federal Income Tax: Roughly $25,000
- Total Estimated Taxes: $47,950

2. LLC Taxed as an S-Corp:
- Total Income: $150,000
- Owner’s Salary: $60,000
- F**A Taxes: 7.65% of $60,000 = $4,590
- Federal Tax on Salary: Approx. $11,247.50
- Distributions: $90,000
- Federal Tax on Distributions: Approx. $15,747.50
- Total Estimated Taxes: $31,585

The Big Difference:
With a sole proprietorship, you pay self-employment tax on the entire income. With an S-Corp, it only applies to your salary, not your distributions.

Potential Tax Savings: $16,365

Key Takeaways:
- S-Corps can be more tax-efficient as income grows
- Salary must be “reasonable” to stand up to IRS scrutiny
- Sole props are easier to manage but may lead to higher taxes
- Always consult a tax professional to determine what’s best for your situation

2025 Tax Season is in full swing!!!! DO NOT wait to get your Books looked at! CAPS Accounting provides Monthly, Quarterly, Year End Bookkeeping and reviews; filing of 1099’s, QuickBooks Software, QuickBooks setup, Consulting and SO much more!!! Contact us today!!!

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