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Returning Member
posted Mar 26, 2024 7:27:00 PM

I'm a freelancer, should I start a C-Corp?

As a freelancer, my marginal tax rate is about 40%

Should I start a C-Corp which will allow me to deduct more expenses and has tax rate of 21%?

 

0 3 1028
3 Replies
Expert Alumni
Mar 27, 2024 6:52:06 AM

There are a lot of different potential corporate structures.  I recommend you take the time to sit down with a professional who can look at the numbers that you're generating and make recommendations about the different types of corporations and what they mean for you.  

 

@companyor 

Returning Member
Mar 27, 2024 8:06:12 AM

Why would anyone pay 40% tax when C-Corp only has to pay 21% tax?

Level 15
Mar 27, 2024 8:29:04 AM


@companyor wrote:

Why would anyone pay 40% tax when C-Corp only has to pay 21% tax?


For starters, you must pay yourself a fair wage as compensation for the work you perform for the corporation.  That salary goes on a W-2, and is subject to regular income tax on your personal tax return, plus social security and medicare withholding, plus the corporation pays matching employment taxes.  You can only pass the "profits" to the "shareholders" (i.e. you) after you have paid yourself a fair market wage (what you would have to pay an unrelated person to run the business for you).  Failing to pay the corporate owners a fair salary is one of the most common issues the IRS audits.