Wealthy Tax Secrets

When you are trying to decide between paying corporate income taxes or individual income taxes there are a few different things that you must be aware of and keep in mind. First, to file corporate income taxes you must first form a corporation. In comparison, anyone whom earns income as a very minimum requirement may and even must file individual income taxes. Second, you need to know or at least be able to make an educated guess at the amount of income that you will be required to file income taxes for. Lastly, do you want all of the excess liability that forming a corporation will bring or do you desire to be personally liable for your personal income source if you do not form a corporation?

I was playing around with numbers to try to figure out if it would be more of an advantage to file taxes as a corporation or an individual. Although, there are other factors to consider beyond income taxes when deciding whether or not to form a corporation, forming a corporation can help you to become eligible for additional deductions and credits beyond the individual filer.

Here is what the numbers show me after playing with multiple income levels:

• The corporate income tax filer pays less income tax from $30,000/year-$123,000/year
• The individual income tax filer pays less income tax from $123,000/year -$517,000/year
• The corporate income tax filer pays less income tax above $517,000/year

At every level of income above $517,000/year, the corporate income tax filer will have a 4.6% advantage above the individual filer. The level of income of $335,000/year has the biggest drawback of filing income tax on as a corporation. Although from an income tax standpoint, if you are able to collect $21,500 in deductions as a corporation at the income level of $335,000/year that you cannot collect as an individual, there would be an advantage to filing your taxes as a corporation.

Now, if you pay yourself a salary from the corporate income you will then be required to pay income taxes two times. You would be both earning an income as an individual from your salary that the corporation is paying you and the corporation would be earning an income. If this were the case, you would be required to pay an individual income tax on your salary and a corporate income tax on your corporation’s income. This would not be an advantage to you in any way. You would be putting yourself in the position of double jeopardy. Although, in this type of double jeopardy you will gain some for corporate operating deductions from the salary you have paid yourself. Nonetheless, it is still double jeopardy and it is still a disadvantage!

Corporations do offer advantages for an individual filer as a trader. You can deduct medical insurance premiums and co-pays, retirement payments and investments and many other items on your individual income taxes under a corporation. Nevertheless, compared to partnerships and individual rates a trader forming a corporation for tax reasons only may not have advantages over filing as an individual unless there are numerous deductions and credits available.