When it comes down to it, you can file for three different classifications of integration: S-Corp, C-Corp, or LLC (sole proprietorship). Each has different advantages and tax breaks. Before you choose one of these three options, consult a tax or legal advisor to ensure that it is the best move for you.
LLC (sole proprietorship)
An LLC is a great option because it provides you liability protection. You also avoid the taxation that corporations are subject to. An LLC is a great option for sole proprietorship, as it saves money, offers protection, and leaves open the opportunity to form future partnerships.
If you are a sole proprietorship LLC, you avoid double taxation. However, there are limits to your benefits and your potential for expansion. For this reason, many owner operators file for either C-Corp or S-Corp status.
Choosing the C-Corp option means that you have to pay an income tax (that corporations are subject to). Any shareholders you have pay individual income taxes, but are not subject to what is referred to as self-employment taxes when payouts are distributed.
The C-Corp route is usually the best option for owner-operators who do not want or do not qualify for sole proprietorship status.
S-Corp status may provide tax savings. Your taxable wages and SE/FICA taxes may be lowered. The downside is that there is additional cost integrated into S-Corp status (think of it as a large process and handling fee) that negates some of the tax savings.
Be sure to counsel with you financial or legal advisor before filing for an S-Corp.