You may want to reconsider the form of your business. The top rate on both individuals and corporations is 35%, smoothing the income tax differences among proprietorships, partnerships, regular corporations, S companies and LLCs.
The top rate on individuals will likely top 40%. Congress is almost certain to let the Bush tax rate cuts lapse after 2010, which would make the top rate 39.6%. It could climb to 45% if a surtax being talked about by House Democrats is approved.
Higher rates provide a big a big tax incentive to operate as a regular corporation, despite the two layers of tax. With such a big spread between the maximum tax rate on corporations and individuals, many people would avoid operating businesses as S firms, partnerships or sole proprietorships. The reverse happened in 1986, when the top rate on individuals was lower than the maximum corporate tax rate.
Learn more about business formation and the many tax advantages.
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