How income flows to you
- Sole prop/LLC (default): Report on Schedule C; net profit subject to income and self‑employment tax.
- S‑Corp: W‑2 wages + K‑1 pass‑through; distributions typically not subject to SE tax.
- C‑Corp: W‑2 wages; dividends taxed to you separately.
Compensation mechanics
Reasonable compensation for S‑Corp owners is essential. C‑Corps allow broader fringe benefits but may trigger double taxation on dividends.
Deductions, credits, and phase‑outs
Your filing status, total income, and business type influence eligibility for deductions and credits, including the QBI deduction and retirement contributions.
Planning scenarios
- High‑profit service business: Consider S‑Corp election for payroll vs. distributions.
- Reinvesting capital: A C‑Corp may help retain earnings for growth.
- Flexible ownership: Multi‑member LLC with tailored allocations via operating agreement.