Here’s a test you can use to make this determination: find your most recent individual tax return. Look at the self-employment taxes total shown on line 57 — this line appears about half way down page 2 of your 1040 tax return.
Does that number have at least five digits in it? You probably want to consider operating your venture as an s-corporation. This should let you avoid paying the 15.3% self-employment tax on some portion of your business profits.
Note: You will need to pay yourself a reasonable amount as wages and these wages will be subject to self-employment taxes. However if you’re paying a lot of self-employment taxes, probably not all of your profits need to be subjected to self-employment tax — that’s where your tax savings lie.
If you decide you do want to set up an s-corporation, consider using one of our Indiana S corporation kits. We actually publish two options… one that uses an LLC as the starting point (the LLC kit is what we recommend) and one that uses a corporation as the starting point.
Our Indiana S Corporation kit
The recommended LLC version of the kit is immediately below:
Alternatively, the corporation version is available here:
Please note that each kit comes with complete instructions you will need to form the entity of choice as well as sample documents you will need to show how it is managed.
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If you buy one of our Indiana kits and realize it isn’t a good fit or option for you, just e-mail us for a refund request. The e-mail address is firstname.lastname@example.org.
What Tax Returns Are Required for a New Small Business Corporation?: This article lists the returns that need to be filed by both c- and s-corporations.
What Sort of Accounting System Does a Small Business Need?: Make sure you are tracking all of your income and expenses.