BizSugar.com › Management › How to Save $$$ in Tax Dollars by Forming an S Corp

Why should you form an S Corp? Over 70% of U.S. businesses are operated as sole proprietorships—and it’s no surprise. Sole proprietorships are the easiest business structure to form and operate. That’s all great, but if you’re a sole proprietor, your tax obligation can be a significant burden.

To start with, sole proprietors are responsible for paying 100% of their self-employment taxes to cover Social Security and Medicare. If you were working for someone else, you’d only be responsible for half of those expenses, as your employer pays the rest. Essentially, you’re paying both personal and business tax on every dollar you earn.

Another tax disadvantage for sole proprietors is that they are taxed on all profits of the business, less any deductible expenses.

Compare this scenario with another increasingly popular business structure—the S Corporation.