Best Business Type With Lowest Taxes?

[grubber2]

Hey there. I was planning to start up my own business which makes indie games for online play. One of the things I've encountered that's interesting though is the amount of taxes I would have to pay for being a self-employed solo proprietorship. Self-employment tax is 15% in and of itself, while federal, state and local end up being about another 25% of my profits! (this is an estimate but still a pretty accurate one) I was wondering what are my choices or alternatives that I can think of to try and maybe lower this tax amount? Or is it just not possible? I apologize for my lack of inexperience.

[Freelancier]

The tax man must get paid. Just accept that.

When I first started out, I had a conversation with my accountant about what I could do to lower my tax rate. It came down to: buy a house and pour money into a tax-deferred retirement fund. Basically, create deductions from things you might want anyway. I didn't want a house, so I poured 25% of my income into a SEP-IRA.

You pay the self-employment (payroll) tax on income up to about $118K right now. If you go over that, about 3/4ths of that 15% goes away.

If you create a C-Corp, you can (possibly) have a lower corporate tax rate than your personal rate... however, you'll get taxed on the money that stays in the corporation at the end of the corporate year AND you'll be taxed again on that money when you take it as payroll, so there's that potential.

Right now... you don't have a business or business income, so it's not really important, since there's nothing to pay taxes on. When you're a lot closer to having money show up, it's worth visiting with an accountant to get your personal and business tax issues in order. In the meantime, go start your business if that's what you really want to do.

[Owen]

Hey there. I was planning to start up my own business which makes indie games for online play. One of the things I've encountered that's interesting though is the amount of taxes I would have to pay for being a self-employed solo proprietorship. Self-employment tax is 15% in and of itself, while federal, state and local end up being about another 25% of my profits! (this is an estimate but still a pretty accurate one) I was wondering what are my choices or alternatives that I can think of to try and maybe lower this tax amount? Or is it just not possible? I apologize for my lack of inexperience.

Sole proprietorship lol

If you register as a C-Corp everything Freelancier says basically happens, but there is a tax loophole.

Basically, all money that the company saves gets taxed. You can register dummy LLC's in different states and countries (especially Ireland) and give a portion of the money to each company. Those companies won't be owned by your corporation but you will be apart of them. You will be the only owner of these limited companies. When the corporation's money gets taxed very little will end up getting taxed and the LLC won't get taxed a lot (depending on the state, Delaware has the best taxes). When you want to spend the money in the other companies you just basically either loan it to yourself or have them "invest" in your main corporation with a 0% interest rate. :D

[Harold Mansfield]

Hey there. I was planning to start up my own business which makes indie games for online play. One of the things I've encountered that's interesting though is the amount of taxes I would have to pay for being a self-employed solo proprietorship. Self-employment tax is 15% in and of itself, while federal, state and local end up being about another 25% of my profits! (this is an estimate but still a pretty accurate one) I was wondering what are my choices or alternatives that I can think of to try and maybe lower this tax amount? Or is it just not possible? I apologize for my lack of inexperience.
My advice...make some money first. You have a long way to go to create a concept, develop, market, distribute, and make money from games. Get there first and if you're making so much that you need to adjust your tax burden it's easy enough to hire a financial team to do that for you.

If you think income tax is going to be so much more burdensome for you than it is every other business in your state, simply incorporate in another state like DE or NV and move on to actually getting a business started.