Expert: John Kirk, CPA Date: 7/24/2008 Subject: S-corp VS C- Corp
Question QUESTION: Hi There,
I have few questions about the corporation selection.
I am about to start a small business with a partner in CA.
currently me and my partner are already employed and in 30% tax bracket. The business we are starting is jewelry business and i am not sure we will have much profit the first year. if it will be it will be less then $10-15K
I want to know what kind of corporation will be better S-Corp or C-Corp according to the tax benefits?
ANSWER: S-corp has more tax benefits. If you are expecting losses. A C-corp has a higher tax rate.
John Kirk, CPA
---------- FOLLOW-UP ----------
QUESTION: Thanks for your answer,
if it's S corp. How is the profit taxed. does it add on top of salary that we get at our regular(engineer) job or it is capital gain tax.
Looking forward for your answer,
Answer An S-corp's earnings are distributed to the shareholders. Any distributions from the S-corp are tax free to the extend of the shareholder's capital account. Any excess distribution over the shareholder's capital account is a capital gain.
Typically shareholder's take a distribution to pay for any taxes on the income that is taxed to them personally.
