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Choosing a corporate structure

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in Small Business Tax

Q: I am a private attorney going into practice. With the new 15 percent tax rate on dividends, am I better off tax-wise setting up the practice as a personal service C corporation, rather than a self-employed taxpayer filing Schedule C? J.J., Los Angeles, Calif.

A: No. Although a corporate structure, such as a personal service corporation, provides certain tax benefits, you still must contend with the dreaded "double taxation" issue. That means some earnings could be taxed first to the corporation and then again at your personal level when paid out as dividends. As a self-employed sole proprietor, owner of a single-member LLC or shareholder of a solely owned S corporation, your business income would be taxed only once (at the personal level). Despite the tax-rate reduction to 15 percent for dividends, most solo operations are best conducted as a sole proprietorship, single-member LLC or solely owned S corporation. Note: To compound the C corp double taxation problem, personal service corporations are taxed at a flat 35 percent rate, as opposed to the usual graduated rate structure for corporations.

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