P.P.S. This is totally not relevant, but an interesting discussion of tax policy -- if your business starts making a ton of money, it may become worth it to incorporate. There's two styles but from this perspective they're basically the same. Once incorporated, you pay an annual incorporation fee/tax to your state of incorporation (in CA it's like $800, I think it's near $0 in Delaware) and your business now pays the business marginal tax rate of 35% to the feds instead of the personal marginal tax rate of 39.6% to the feds. However, if you pay yourself any salary, that is taxed at your personal rate and it gets deducted as an expense from the business.
This is why large businesses incorporate and small ones don't. This is also why there's an interesting graph somewhere about "personal income" over time. Back when the marginal tax rate was 90% instead of much closer to the business tax rate, it made sense to incorporate at a much smaller business size. Change the tax rates, and people change their business structures, but it also changes the pie graphs as to what percentage of federal tax revenue comes from "business" vs. "personal" sources.
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chiming
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Date: 2013-04-20 05:06 am (UTC)From:This is why large businesses incorporate and small ones don't. This is also why there's an interesting graph somewhere about "personal income" over time. Back when the marginal tax rate was 90% instead of much closer to the business tax rate, it made sense to incorporate at a much smaller business size. Change the tax rates, and people change their business structures, but it also changes the pie graphs as to what percentage of federal tax revenue comes from "business" vs. "personal" sources.