S-Corp v. Sole Prop

Key differences, that could make the difference...

Home > S-Corp v. Sole Prop

If you are a self-employed 1099 earner?

If yes, and you are not incorporated, you are subject to double taxation. Along with your income tax being assessed, self-employed taxpayers pay an additional tax of 15.3% on the net profit of the business. S-corporation tax treatment can provide a way to take some money out of your corporation without paying self-employment taxes (Social Security and Medicare). This is because you do not have to pay this tax on distributions (dividends) from your S corporation—that is, on earnings and profits that pass through the corporation to you as a shareholder. This is the main reason S-corporations have been, and remain, popular with small business owners.


Example: (Filing single)

Sole prop:

  • $50,000 Profit
  • $7,065 Self-Employment Tax
  • $4,955 Income Tax

$12,020 Total Tax

Example: (Filing Single)

S-Corp (Flow-through):

  • $50,000 Profit
  • $0 Self-Employment Tax
  • $5,690 Income Tax

5,690 Total Tax