MSL" <muzaffarl[at]comcast.net> wrote:

- quote -

Here's a short and admittedly oversimplified answer. It may
or may not be good enough for your purposes; you really need
to ask this question of a professional and expect to pay for
his answer. If your business is worth carrying on, this
expense should not be unreasonable to you.

A corporation pays taxes on its income *before dividends are
paid*. Thus, even with the dividend tax relief, dividends
are taxed twice, once at the corporation's rate and then at
the tax-relief rate.

Corporations have their own tax rates, which are generally
quite a bit higher than personal tax rates. In particular, a
"personal service corporation" (one that exists for the
purpose of providing services furnished by the shareholders)
is taxed at the highest corporate rate on the first dollar
of income. There are a few other traps, such as the punitive
"personal holding company" and "excess retained earnings"
taxes, that you should concern yourself with as well.

Determine whether you would pay less tax overall taxed as a
disregarded entity or taxed as a corporation, taking
corporate tax rates and double taxation of dividends into
account. You will have your own answer.

--
Chris Green

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"MSL" <muzaffarl[at]comcast.net> wrote:
- quote -

You may very well save your self taxes on your personal
return, at the expense of having to file state and federal
corporate returns, and pay state and federal income taxes
(dividends are not a deductable corporate expense). Not to
mention basis issues when you go to sell or close the LLC,
ad nauseum.

Gee, I hope this free advise met your schedule.

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Anonymous wrote:

- quote -

If you get taxed as a corporation, you will need to pay
corporate income tax. I think usually that plus 15% will be
bigger than your sole prop taxing. There are exceptions. For
example, since the corporation can pay for your health care
with pre-tax money, you could come out ahead if that is
significant. I suspect there are other common techniques
that work.

http://www.cpa-services.com/four.shtml
should be of significant interest. In particular, see Fringe
benefits section.

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"MSL" <muzaffarl[at]comcast.net> wrote:
- quote -

What is this, fax on demand? Your asking for a free
professional opinion on a complex situation with no facts
offered to even make an Uninformed guess.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Anonymous wrote:

- quote -

I am looking for a similar answer as I am ready to form my
corporation too.. Somebody who knows the answer please post.

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I have a newly formed LLC, which is classified as a
(default) sole proprietorship for tax purposes.

With the new dividend tax relief, would it make sense for me
file form 8832 and elect to be taxed as a corporation? My
thinking is that I could pay myself a salary then tax
profits out at the end of the year as divends taxed at 15%,
a significant savings.

Is this kosher? I've been hunitng around for answers but
haven't found anything. I'd be grateful to hear any
knowledgable opinions.

Thanks!

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