Discussion:Quick help please!

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Discussion Forum Index --> Tax Questions --> Quick help please!


San Diego (talk|edits) said:

5 January 2007
As a non-CPA, would I choose to incorporate as a general-for-profit or professional corporation?

Deback (talk|edits) said:

January 5, 2007
Do you really want to incorporate? Do you really want to have to pay yourself wages and fill out the monthly and quarterly forms? Do you really want all the extra paperwork? What made you decide to incorporate?

San Diego (talk|edits) said:

5 January 2007
avoiding SE taxes. I can handle my own payroll and tax filings.

Deback (talk|edits) said:

January 5, 2007
Well, you will actually pay less SS taxes if you are self-employed...14.1% as self-employed vs. 15.3% as an employee. What am I missing?

JR1 (talk|edits) said:

January 5, 2007
How you figure that, Deback? Works out the same for both...15.3% and deduction for the employer share of SS taxes.

San Diego (talk|edits) said:

5 January 2007
I was referring to the oridinary income from the K-1 that is not subject to SE tax.

Deback (talk|edits) said:

January 5, 2007
I was referring to the actual SE taxes that would be paid on a Sch C net income (on Sch SE - .9235 x .153 = .1412955) compared to the actual SS taxes that would be paid if the income was considered wages (.153). I was not taking into consideration that the corporation would deduct the employer's share of the SS taxes. Also, I didn't mention the savings from not having to pay state and federal unemployment taxes and the annual corporate fee to the state. However, the difference in SS taxes could be minor compared to the other benefits of incorporating--which could evolve into a lengthy discussion.


I also just noticed that San Diego is now referring to a Sch K-1, so it appears he is talking about an S Corp and not a C Corp.

San Diego (talk|edits) said:

5 January 2007
S-Corp, of course! Sorry for not stating that. Now, does it need to be considered a professional corpoartion? I think so because I am certified through the state still.

Bengoshi (talk|edits) said:

5 January 2007
You question is more legal rather than tax related. Each state has its own rules governing how professionals should be organized. Try contact the administrative agency that handles business registration in your area, or spend some money and see an attorney.

Deback (talk|edits) said:

January 5, 2007
I was just reminded that, when I checked into this back in the early 80s, I determined that I'd have to be a PSC (since my sole business was providing services) and pay the 35% tax, so I decided back then not to incorporate. I also didn't want the hassles of being an employee and filing corporate tax returns. I haven't set up any corporations since the late-80s, and since about 1995, I haven't accepted any new monthly business accounts, so I will bow out of this discussion and let you wait for more qualified responses.  :)

Deback (talk|edits) said:

January 5, 2007
Bengoshi is correct, and that's probably why I tend to shy away from the "more legal" type of questions.

San Diego (talk|edits) said:

5 January 2007
But the 35% would only apply as a C-Corp. Or am I missing something?

Jdugancpa (talk|edits) said:

5 January 2007
Yes, a PSC is by definition a C corp. So the 35% rate will not apply to an S corp. Bengoshi is correct that the status as a "PS" or "PSC" (professional service corporation) has no tax ramifications and is determined by how your state law is written. I would suspect, but do not know for certain, that if you have no professional designation requiring state certification or licensing, e.g., CPA license, you probably would not use a PS.

EAPHD (talk|edits) said:

6 January 2007
I never hear a CTEC Certified Tax Preparer. This is a misleading information. You only registered to CTEC in California after finishing 60 hrs basis tax court. Certified is only used for a CPA. Even Enrolled Agents are certified by IRS, they can not use term Certified in Advertising. You are not qualified under Professional Corporation.

Will (talk|edits) said:

6 January 2007
"60 hrs basis tax court" -- I do believe this is some kind of nightmare.

Bottom Line (talk|edits) said:

7 January 2007
Don't know anything about CA requirements (I'm in FL) but as far as the Fed, I'm an S-corp not a PSC. I do bookkeeping, taxes and QuickBooks training. Pay myself salary and distributions. The distributions save on SE tax!

Jdugancpa (talk|edits) said:

8 January 2007
I think there is some confusion of terms here and I may have contributed to it in my answer above. There is a type of corporation referred to as a "personal service corporation" (a "PSC")(a subset of which is called a "qualified personal service corporation" ("QPSC") which is, by definition, a C corporation and is taxed at a flat 35%. There is a legal form of corporations referred to as "professional service corporations" (also sometimes referred to as either a "PS" or a "PSC"). Most professional service corporations which have not elected S status will be taxed as QPSC's. However, a professional service corporation which elects S status is no longer a C corp (obviously) and therefore will not be considered a personal service corporation subject to the 35% tax rate.


I think San Diego's original question was not whether or not he should be a QPSC or an S corp, but rather whether he should form a regular for-profit corporation (an "inc") or a professional service corporation (the other kind of "PS"). As stated previously, whether he should form an "inc" or a "PS" is determined by state law, not federal tax law, and is likely determined based upon whether he has professional designations requiring a state license, as a CPA, an attorney or a doctor might.

Tdoyle (talk|edits) said:

January 8, 2007
I have taken Jdugan's information above and placed it into the page Types of Corporations. Please feel free to edit or add to this. Having information spelled out like this would be a great place to direct people when the next question on this topic comes up.


- Tim Doyle, TaxAlmanac Moderator - Talk to me 11:08, 8 January 2007 (CST)

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