In yesterday’s post, Avoid Legal Trouble I wrote about switching from sole-proprietor to LLC in order to protect personal assets. Taking things a step further, you can create a C or S corporation.

Both types of corporations have advantages and disadvantages. Have a knowledgeable tax professional at your side to ensure compliance.

The IRS plans to examine 5,000 randomly selected S corporation returns from the 2003 and 2004 tax years. The audits will start later this year, and should all be completed within two to three years

S corporations are attractive to shareholders because they offer the same liability as traditional C corporations without double taxation.

The IRS is looking to see whether employee shareholders are forgoing a salary or reporting artificially low pay in favor of a big dividend. Some shareholders have done so to reduce or even eliminate self-employment taxes; that’s against the law.

Why not just simplify the tax system and eliminate the IRS altogether?

Source:
Associated Press

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