Some Questions that will help you decide on the right choice or entity 

   Yes   No

    __    __       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

                                       Wages                       $40,000

                                        Health insurance           6,000

                                        Retirement plan            6,000

                                        Other non wage $        8,000

                                         Total                          60,000

 

 Tax cost associated with above profit "spent" by different entity types  

    Type of Entity ------->          DBA, LLC               C                     S

                                                     or            Corporation     Corporation

                                               Partnership

   Tax on business profit

   component when taken

   as:     

 

          Wages                              38%                 38%              38%

          Health Insurance                14%                   0%                0%

         

          Retirement Plan                 14%                   0%                0%

          Other                                38%                 35%              24%