Minimizing Self-Employment Tax

Discussion in 'Bookkeeping & Taxes' started by april, Feb 11, 2011.

  1. april

    april New Member

    I am a small business owner. Now that <a href="" target="_blank" title=", where we compare tax software for you.">tax season</a> is here, I was wondering what is best way to minimize exposure to self employment tax?
    I really appreciate any insight!
  2. Jim CPA

    Jim CPA New Member

    I'm assuming if you're concerned about paying self-employment tax that you're a sole proprietor or partnership. What you probably want to do is to form an s-corporation. You'd need to pay yourself a reasonable salary for the work you do and you'd still have to pay regular income tax on all your income, but you would avoid paying self-employment tax on the profits your business generates.
    To do this, you'd need to form a corporation in your state, which you can do at the Secretary of State's website where you live. After that, you'd file a Form 2553 with the IRS, to declare yourself an s-corporation. There are lots of tricky in's and outs regarding this, so you should definitely seek professional help before doing anything.
    Hope that helps.

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