Does it worth converting from Sole Prop to S Corp if gross income is 50K?

[misterno]

I keep reading about how S Corp is more advantegous because you pay less tax.

But my 9AM-5PM income is 110K and business on the side is only 50K so does it worth converting?

[Freelancier]

You can structure an S Corp so you pay less taxes... but since you're already earning $110K at your other job, you really won't save enough to make it worthwhile for that purpose.

Only reason to convert your small business into a limited liability entity (corp, LLC) is for liability reasons. If those don't apply, don't waste your time on it at this point.

[misterno]

You can structure an S Corp so you pay less taxes... but since you're already earning $110K at your other job, you really won't save enough to make it worthwhile for that purpose.

Only reason to convert your small business into a limited liability entity (corp, LLC) is for liability reasons. If those don't apply, don't waste your time on it at this point.


I understood the liability reason

I am not understanding the 110K income reason. So what you are saying is my income therefore my tax bracket is very high so paying less taxes on the incremental income does not add much value. Is that what you are saying?

But tax savings is so much, I can not agree with you. Or maybe I am not understanding.

[Freelancier]

Your "regular job" income is near the point where social security (12.4%) stops being paid.

Dividends from corporations are charged at your ordinary tax rates, and don't get charged social security and medicare (2.9%).

An S-Corp income is pass-through, which means you pay all taxes on it, regardless of whether you take it as dividend or as income. But you can only take so much as a dividend anyway before the IRS will wonder why you didn't just declare it as regular income. So the tax difference is so minimal (maybe that 2.9% on the portion that will be dividends) that it's not worth the extra hassle of maintaining the corporation (which can cost $100+ in some states).

As always, your best bet is to visit with an accountant and have them work out the specifics of your tax situation.