Re: Incorporating, and the need for a lawyer

[Laurel Nelson <Laurel_Y_Nelson -at- NOTES -dot- SEAGATE -dot- COM>]

In response to my post, Mike Uhl wrote:

Subchapter S Corporations do not pay out dividends; all excess money is
paid
out as either salary or "draw" and taxed once at the personal level (Form
1040
and attachments). This is the principal advantage of an S Corporation,
i.e.,
income is taxed only once, and at the personal rate, which used to be/is
lower
than the corporate rate. As an employee of my own corporation, I also took
money out in salary and "draw."  However. you must pay FICA even on this
draw.

C Corporations can pay dividends. Dividends are quite different from the
"draw" I mentioned above. They are taxed twice: at the corporate level and
at
the personal level. C Corporations do offer some benefits to owners, in
health
care benefits, for instance. However. most independent technical
communicators
will likely want to go with a Subchapter S Corporation. Contact the IRS for
more information.

------------------------------------------------------

Mike: I just talked to the programmer who told me about declaring income as
part dividend and part salary. His business is set up as an S Corp and he
does just what I wrote and has done so for about five years now. The only
information that was incorrect in my original post was that his accountant
told him to claim 80 percent dividends and 20 percent salary, but that's
when he became concerned with getting audited and called a district court
judge who tries IRS cases. He does not pay FICA on his dividends.

I was just passing this information along. Maybe S Corp and C Corp rules
vary from state to state. I don't know. My coworker has been doing this for
five years--I'm not making up this story and I did accurately relate the
facts. Like you said, forming as S Corp isn't something people should do on
their own. They need the help of an accountant.

Regards, Laurel

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