Small Business Tax Center
Small Business Ideas, Grants &
Plans to Start & Run a Business:

Small Business Grants
Network in Cyberschmooz Community Ask Questions Questions and Answers Share Tips Small Business Ideas List Your Business Business Advice from Idea Cafe Experts Coffee Talk with Experts Starting A Business Business Plan Biz Planning | Sample Plans Small Business Ideas Idea Name Your Biz Name Plan Your Biz Plan Financing $ Starting a Business Do It! Running your Business Marketing Tips Promotional Merchandise Marketing Tips Marketing | Sales | Customers Human Resources HR | Employees | Contractors Legal Forms & Tax Information Legal | Biz Forms Managing a Business Managing | Operations
Financing Resources Financing Your Business E Commerce & Webhosting eCommerce Take Out Info Trade Publications FREE Trade Publications Business Books Biz Books Your Own Business Small Business News Small Biz News Gen X Biz Gen X Biz Work at Home Work @ Home Business Information The Fridge - Biz Info on Ice Destress Send Awards Send Awards & Greetings Yoga At Your Desk Yoga @ Your Desk Fun Guide Guide to Find FUN Online About Idea Cafe Press Idea Cafe has received Idea Cafe in the News Idea Cafe's Kudos Kudos for Idea Cafe Advertise on Idea Cafe Advertise on Idea Cafe Privacy Policy Privacy Policy Contact Idea Cafe Contact Idea Cafe Link to Idea Cafe Link to/from Idea Cafe Join Idea Cafe
Search Idea Cafe Site Directory Site Map Online directory to business resources Biz Web Guide

Answer from our Guest Expert Kent Capener of Capener Consulting


The Tax Factor

Here's the basic difference between a C corporation and an S corporation. In the C variety, taxes are owed and due from the operations of the business. Your pay (salary) is an expense and you pay your tax rate on the income you take as salary or W-2 income. In the S variety, taxes are owed and due from the operations of the business proportionately equal to the ownership of the business by individuals (by the percentage of ownership). The profits are passed through to the owners. The corporation doesn't pay any income taxes, but the owners do, based on their personal tax situation. The profits, if any, are treated as personal income.

For example, let's say your business profits $100,000. A C-corporation 1999 tax rate would be $22,250 or 22.25%. You and your partner each take $100,000 in salary and you are both single. Your individual tax liability is $14,138.50 plus 31% of the amount over $62,450, or $11,640, so you would pay a total of $25,778.50 each in tax or in effect 25.8%. You, and in this case I mean you, your partner, and your business, have a total tax liability of approximately $73,807.

So let's now look at what would happen if you were an "S" corporation, equally owned 50/50. You still take your $100,000, but not as salary, as officer compensation and your business profits $100,000, which is split equally, $50,000 each. There is no corporate tax liability. Each partner's tax liability is based on $150,000 in income. Individual tax liability is $35,156.50 plus 36% of the amount over $130,250, or $7110.00 for a total of $42,266.50 each and $84,533 in total.

Whew! But what's the difference in your pocket? Your salary from your C-corp netted you $74,221.50 and no income from the profits. Your officer's compensation and profits distribution netted you $107,333.50. But what if you reinvest the profits? Then your officer compensation of $100,000 would net you the same $74,221.50. And your profits would go to bettering your business instead of your pocket and/or a share to the government. An accountant can give you a detailed tax analysis based upon your choices and it is recommended that you do that to take into account all the variables.

Page 1 - 2 - 3 - 4 - 5


Small Business Tax CenterIdea Cafe HomeSign UpBiz Grant CenterCyberSchmoozCoffee Talk with ExpertsPeople in Biz ProfilesStarting Your BizBiz PlanningRunning Your BizFREE Trade PublicationsMarketingFinancing Your BizHuman ResourcesLegal & Biz FormsManaging Your BizeCommerceYou and Your BizGen XWork@HomeThe FridgeDe-StressSend an AwardSend an eGreetingYoga @ Your DeskWeb GuideIdea Cafe in the NewsAbout Idea CafeAdvertise on Idea CafeContact UsPrivacy PolicySite MapSmall Biz News

Copyright 1995-2019, Idea Cafe Inc. Downloads are for personal use only, not for resale to others, and may not be reprinted in any form without written permission from Idea Cafe Inc.

DISCLAIMER: We hope whatever you find on this site is helpful, but be cautioned that it may not apply to your own situation, or be totally current at any given time. Idea Cafe Inc. and all of its current and past experts, sponsors, advertisers, agents, contractors and advisors disclaim all warranties with regard to anything found anywhere on this family of websites, quoted from, or sent from Idea Cafe. and its related sites, publications and companies. We also take no responsibility for comments published by others on these pages.

TRADEMARKS: The following are Registered Trademarks or Servicemarks of DevStart, Inc.: Idea Cafe®, Online Coffee Break®, The Small Business Gathering Place®, Take out Info®, Biz Bar & Grill®, Complaint-O-Meter®, A Fun Approach to Serious Business™, CyberSchmooz™, and BizCafe™.