Which Business Structures Avoid Self-Employment Tax?

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Face it, there is one main purpose for your business. It exists to put money in your pocket. There could be other things you are doing, which are part of your vision and mission, but if it’s not putting money in your pocket at least sometime in the future, your business won’t last. One of the most common taxes in the wrong business structure is self-employment tax. I’ll get there, but I want to start a few steps back.

Your business starts with sales. That’s gross sales. From that, you subtract cost of goods and that gives you gross profit. From that, you subtract general & administrative costs. That gives you net income. But that still doesn’t give you cash. Net income is adjusted by uses and sources of cash flow from operation, financial and investment functions. That gives you your cash flow. (Use a Statement of Cash Flows to find out how you’re doing.) Then you have cash. But, you can’t put it all in your pocket. That’s because the final expense you have to pay will be your taxes.

You’ll have state income tax, federal income tax and if you’ve picked the wrong business structure, you’ll also have self-employment tax.

There is so much that has to happen to put cash in your pocket. Don’t let a silly thing like the wrong business structure take some of it away.

The best business structures for business are S Corporations, C Corporations or LLCs that have elected S Corp or C Corp status.

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