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    ly $13,500, in self-employment taxes on his profits.

    Brown operates his business as a C corporation which pays all of its profits to him as a salary. Accordingly, Brown (through his corporation) also pays 15.3%, or roughly $13,500, in Social Security and Medicare taxes.

    Cole’s situation is different. Cole operates his business as

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    Ever wondered why so many small businesses—more than 3,000,000 at last count—operate as an S corporation? Simple. An S corporation saves business owners big taxes in three separate ways:

    First, as compared to regular corporations (sometimes called C corporations), S corporation owners can use the business’s losses incurred during the early lean years on the owner’s personal returns as deductions. For example, suppose a new S corporation suffers a $20,000 loss its first year and that the corporation is equally owned by two shareholder-employees, Smith and Jones. Smith and Jones each get a $10,000 business deduction on their individual tax returns because of the S corporation loss. This $10,000 deduction might save them each as much as $4,000 in federal and state income taxes.

    A second, big S corporation benefit: As compared to almost every other business form, S target="_new" corporations can save their owners self-employment or Social Security/Medicare taxes. Suppose, for example, that Adams, Brown and Cole independently each own businesses that make $90,000 a year in profits. Each business owner may pay $13,000 in income taxes. But, unfortunately, that’s not the only tax they pay. Each owner also pays self-employment or Social Security/Medicare taxes.

    For example, Adams operates his business as an LLC and therefore pays 15.3%, or roughly $13,500, in self-employment taxes on his profits.

    Brown operates his business as a C corporation which pays all of its profits to him as a salary. Accordingly, Brown (through his corporation) also pays 15.3%, or roughly $13,500, in Social Security and Medicare taxes.

    Cole’s situation is different. Cole operates his business as

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    rly lean years on the owner’s personal returns as deductions. For example, suppose a new S corporation suffers a $20,000 loss its first year and that the corporation is equally owned by two shareholder-employees, Smith and Jones. Smith and Jones each get a $10,000 business deduction on their individual tax returns because of the S corporation loss. This $10,000 deduction might save them each as much as $4,000 in federal and state income taxes.

    A second, big S corporation benefit: As compared to almost every other business form, S target="_new" corporations can save their owners self-employment or Social Security/Medicare taxes. Suppose, for example, that Adams, Brown and Cole independently each own businesses that make $90,000 a year in profits. Each business owner may pay $13,000 in income taxes. But, unfortunately, that’s not the only tax they pay. Each owner also pays self-employment or Social Security/Medicare taxes.

    For example, Adams operates his business as an LLC and therefore pays 15.3%, or roughly $13,500, in self-employment taxes on his profits.

    Brown operates his business as a C corporation which pays all of its profits to him as a salary. Accordingly, Brown (through his corporation) also pays 15.3%, or roughly $13,500, in Social Security and Medicare taxes.

    Cole’s situation is different. Cole operates his business as

    8 Good Reasons Your Small Business Should Have a Web Site
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    loss. This $10,000 deduction might save them each as much as $4,000 in federal and state income taxes.

    A second, big S corporation benefit: As compared to almost every other business form, S target="_new" corporations can save their owners self-employment or Social Security/Medicare taxes. Suppose, for example, that Adams, Brown and Cole independently each own businesses that make $90,000 a year in profits. Each business owner may pay $13,000 in income taxes. But, unfortunately, that’s not the only tax they pay. Each owner also pays self-employment or Social Security/Medicare taxes.

    For example, Adams operates his business as an LLC and therefore pays 15.3%, or roughly $13,500, in self-employment taxes on his profits.

    Brown operates his business as a C corporation which pays all of its profits to him as a salary. Accordingly, Brown (through his corporation) also pays 15.3%, or roughly $13,500, in Social Security and Medicare taxes.

    Cole’s situation is different. Cole operates his business as

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    le independently each own businesses that make $90,000 a year in profits. Each business owner may pay $13,000 in income taxes. But, unfortunately, that’s not the only tax they pay. Each owner also pays self-employment or Social Security/Medicare taxes.

    For example, Adams operates his business as an LLC and therefore pays 15.3%, or roughly $13,500, in self-employment taxes on his profits.

    Brown operates his business as a C corporation which pays all of its profits to him as a salary. Accordingly, Brown (through his corporation) also pays 15.3%, or roughly $13,500, in Social Security and Medicare taxes.

    Cole’s situation is different. Cole operates his business as

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    ly $13,500, in self-employment taxes on his profits.

    Brown operates his business as a C corporation which pays all of its profits to him as a salary. Accordingly, Brown (through his corporation) also pays 15.3%, or roughly $13,500, in Social Security and Medicare taxes.

    Cole’s situation is different. Cole operates his business as an S corporation which means that Cole can split his $90,000 of profits into two payment amounts: salary and S corporation distributions. Suppose that Cole says only $40,000 of his profits are salary and takes the other $50,000 as a “dividend” distrbution. In this case, Carter pays the 15.3% Social Security/Medicare tax only on the $40,000 in salary. Carter therefore pays roughly $6,000 in Social Security/Medicare taxes—and annually saves $7,000 in taxes as compared to Adams or Brown.

    S corporations also, sometimes, provide a third form of tax savings because S corporations don’t pay corporate income taxes. This means that S corporations avoid the often-talked about “double-taxation” problem. However, the “no corporate income taxes” benefit often isn’t a savings for small corporations and their owners.

    But let me explain. Suppose that two corporations each earn the same pretax profit of $100,000 and are owned by Ms. DaVinci who pays the highest federal income tax rate of 35%. One corporation is an S corporation and the other is a C corporation. The S corporation can distribute the entire $100,000 in profits to DaVinci as dividends because there is no corporate income tax. DaVinci then pays $35,000 in personal income taxes on the S corporation profits, which means she nets $65,000 in after-tax profits from the S corporation. In comparison, the

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