Some Questions that will help you decide on the right choice or entity
__ __ Will my business profits be greater than what I would be paid
a reasonable salary for what I do?
__ __ Do I need to reinvest profits in inventory or equipment?
__ __ Does the business own assets that will substantially increase
in value over time?
__ __ Will my business incur losses during the early years of its
existence? If yes, will losses be funded by my investment
or by 3rd party borrowings?
__ __ Will the company pay for my health insurance coverage?
__ __ Do I have high family medical or dental bills that are not
covered by insurance (high deductible/copays)?
__ __ Will the company have employees other than me or
immediate family members?
__ __ Do I have small children that I would like to allocate some
business profit to for their future use?
__ __ Do I have income sources othen than the business?
__ __ Do I have the discipline to limit my $ withdrawls from the
company to regularly scheduled wages, rent or dividends?
__ __ Do I prefer receiving a "net after tax" check over paying
quarterly estimates of taxes?
__ __ Do I have the discipline to pay payroll taxes when due?
Business profit available to owner Potential taxes on profit
Business receipts $100,000 Income taxes (IRS & OR) 24%
Less expenses for Social Security taxes 14%
materals, non-owner Total potential tax 38%
labor & overhead 40,000 i.e. potential tax cost =
Profit available to owner 60,000 $38 per $100 of profit
Typical ways that business profit is spent
Health insurance 6,000
Retirement plan 6,000
Other non wage $ 8,000
Tax cost associated with above profit "spent" by different entity types
Type of Entity -------> DBA, LLC C S
or Corporation Corporation
Tax on business profit
component when taken
Wages 38% 38% 38%
Health Insurance 14% 0% 0%
Retirement Plan 14% 0% 0%
Other 38% 35% 24%