VeeshanVault

I've been operating as a sole proprietorship for 5 years or so. The guy I contract through (who provides services to HP) told me yesterday that his accountant thinks I should incorporate and pay myself a salary, that I could save thousands in tax $ per year if I do.

I'll probably meet with an attorney (the one my husband used for his company), but I'm looking for additional advice to help me make a decision.

My "business" is just me, and will only ever be me, and I'll never need to get loans or investments in my business. It's all technical service stuff that just involves me and my computer.

I'm not sure I understand how I will save tax money. He mentioned that the savings will be on social security, but I don't see how me paying half and "my company" (which is me) paying half saves me anything. Is there something I'm missing? I live in Texas, btw. There is no state tax here, so I'm not sure if that matters.

I'm also concerned about how this will affect what I can deduct for my business. Having a home office gives me oodles of deductions. Would my business be able to make the same deductions? I would think so, but I'm really looking closely at every little pro and con.

Any advice, experiences?

Oh and my income has increased to the point where I'm looking at opportunities to reduce it tax-wise, so I'll probably start sinking some in pre-tax investments. Can I start my own 401? If yes, should I?

(That may be more suited for the Finance forum, but all this crap seems tied together for me)

Lalanae wrote:I've been operating as a sole proprietorship for 5 years or so. The guy I contract through (who provides services to HP) told me yesterday that his accountant thinks I should incorporate and pay myself a salary, that I could save thousands in tax $ per year if I do.

I'll probably meet with an attorney (the one my husband used for his company), but I'm looking for additional advice to help me make a decision.

My "business" is just me, and will only ever be me, and I'll never need to get loans or investments in my business. It's all technical service stuff that just involves me and my computer.

I'm not sure I understand how I will save tax money. He mentioned that the savings will be on social security, but I don't see how me paying half and "my company" (which is me) paying half saves me anything. Is there something I'm missing? I live in Texas, btw. There is no state tax here, so I'm not sure if that matters.

I'm also concerned about how this will affect what I can deduct for my business. Having a home office gives me oodles of deductions. Would my business be able to make the same deductions? I would think so, but I'm really looking closely at every little pro and con.

Any advice, experiences?

I am about to incorporate myself, and I will pass on what little knowledge I remember from what my accountant told me.

Well, really - he was telling me the difference between incorporating and another option I can't remember for the life of me. The advantage I believe, ended up being a s corp, because like you said I can pay myself a salary - and there is a little tax trick he can do where if you pay yourself (on payroll) less than a certain percentage of the companies income for the year you can get away with paying less taxes.

I don't really remember the details all that well, but what I do know is if you incorporate, your accountant will be able to do a lot more for you when tax time comes.

I'm sure there are others here that will have a little more insight.

I figured I would go ahead and get this right out of the way...

http://www.youtube.com/watch?v=HnsHpPNltBw