If you’re self-employed, you’ll usually have to pay higher Social Security and Medicare taxes, collectively known as self-employment taxes, than if you were an employee of a company. One way to help avoid these higher taxes is to organize your business as an S-corporation. The Internal Revenue Service may take a close look at your taxes if you choose this route, as you could end up lowering your overall tax liability while generating the same net income. If you organize your business as an S-corporation, you can classify some of your income as salary and some as a distribution. You’ll still be liable for self-employment taxes on the salary portion of your income, but you’ll just pay ordinary income tax on the distribution portion. Depending on how you divide your income, you could save a substantial amount of self-employment taxes just by converting to an S-corporation.
For more information on small business taxes, contact a Nevada Corporate Headquarters representative at 1-800-508-1729.