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How does your business structure affect your business taxes?

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Author's Note: How does your business structure affect your business taxes?

When I went into business for myself, I chose to structure as an S corporation, and this did save me considerable cash. I was paying self-employment taxes on 20 percent of my profits instead of 100 percent. However, it's worth noting that after a few years, I learned I wasn't paying myself enough. Apparently, the IRS isn't stupid, and the organization expects S corporation owners to pay themselves a reasonable salary. I learned that audits of S corporations were increasing in recent years due to owners paying themselves a pittance and therefore getting away with paying almost nothing into Medicare and Social Security. So now, I pay myself a salary that's 50 percent of my profits. But hey, it's still a savings.

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