Double Taxation??

Why do you say that corporations have double taxation? A single member LLC has to pay Social Security tax except for income tax, isn't THAT double taxation?

Answer

An employee has to pay social security tax too. Now I realize some will say "but the employer pays half". Yes, the employer pays half, and you can bet next week's paycheck that the employer took that into account when they set your wage.

So, yes, an employee pays his entire social security tax.

A corporation is double taxed because the corporation pays taxes on its profits at 35%. Then when it distributes dividends to its owners after paying 35%, the owners pay taxes on the dividends.

Prior to the Bush tax cuts, that could mean that the corporation pays 35% taxes, then the individual could pay up to 39.6% on the dividends, plus state income taxes.

Under the Bush tax cuts (which probably won't be around for much longer), dividends are taxed at a lower rate, but there is still a double tax.

If the corporation pays its owner a salary rather than a dividend, then of course the corporation and the owner/employee get to split social security and medicare taxes.

If you are the sole owner of your corporation, then does it really matter to you if "you" pay 100% of your FICA taxes, or if you and your company split FICA 50-50?