Why bother establishing a S Corp over just as being a self-employed self proprietorship? Following the recession of 2008 many people are unemployed. For the fortunate ones that work, they're most likely being employed as a contractor versus a ful time worker. Companies are reluctant to employ full-time employees in this tight economy.

This really is more reason why you need to setup a S Corp instead of operating like a sole proprietorship. The very first reason S Corp is preferable to sole proprietorship is liability. S Corp safeguards you against any liabilities that could occur. If things go south only the S Corp would be liable. They can't pursue your individual assets. For instance, your daughter may be the most adorable creature on the planet. So you send her to auditions for various talent agencies. She scores an enormous movie contract having a major entertainment company. You being her agent signs a multi-billion dollar contract within the next five years. Except one day she decides that acting is not for her. Once the talent agency sues you for breaking the contract they are able to only pursue the organization, that is your s corp. Should you sign the contract as a self proprietorship, they are able to pursue everything under the sun.

One more reason to begin an S Corp is payroll tax. Typically payroll tax is about 15%. For individuals who do not know what payroll tax is, it's medicare insurance/state medicaid programs and social security tax. If think back to the times when you were a full time employee, you see that there are 7.5% of the total salary would go to payroll taxes. Another 7.5% is compensated by your employer. The easiest method to check this out for action is by using a good example. Let's say I am making 100,000 annually having a S Corp and you make 100,000 with sole proprietorship. Being a sole proprietorship you're having to pay 7500 as the worker and another 7500 as the employer. So for the 100,000 you'll release 15k just in payroll taxes. I however being a S Corp, I choose to pay myself 50k as salary, so I am only responsible to pay for 7.5% around the 50,000 salary. And So I would pay 3,750 as the worker and pay another 3,750 as the employer. My total is 7,500 in payroll taxes against your 15,000 for the similar 100k earnings.

You will find some disadvantages of beginning a S Corp. You must do more book keeping than you'd should you be self-employed. The starting costs tend to be more than being self-employed. Your yearly tax costs tend to be more because you need to file both 1120S and your regular 1040. But nowadays with the online tools that banks are providing, it is not as troublesome as you would think.