The amount of self-employment tax is lower with an s-corp b/c your salary will be lower. With an s-corp you can also benefit from the standard deduction on your individual return.
Consider:
Sole Propietorship:
taxable income is equal to whichever is lower, gross income minus expenses or gross income minus the standard deduction.
S Corp:
you subtract expenses from the corp's income, and pay your self, say, 60% of the remainder as salary, which is subjected to payroll tax. However, you calculate your taxable income by subtracting the standard deduction from your taxable income. The corp then pays its half of payroll tax, but you can take the remaining income (not paid to you as salary or used for expenses) as a profit distribution, which is only taxed at capital gains rate.
So all in all it can save a lot of money, particularly if you have business expenses (which in a sole proprietorship are eaten up by the standard deduction)...
Note: You have to do payroll every month for it to be legit with the IRS, and you need to file taxes once you create the corporation, even if your situation changes and you don't use the corporation for anything. You also have to pay yourself a reasonable salary. If you're a single employee S Corp then it may be wise to pay yourself > 50% of the corp's gross income as salary, to avoid arousing suspicion that you're doing the s-corp purely as a tax shelter.
Consider:
Sole Propietorship: taxable income is equal to whichever is lower, gross income minus expenses or gross income minus the standard deduction.
S Corp: you subtract expenses from the corp's income, and pay your self, say, 60% of the remainder as salary, which is subjected to payroll tax. However, you calculate your taxable income by subtracting the standard deduction from your taxable income. The corp then pays its half of payroll tax, but you can take the remaining income (not paid to you as salary or used for expenses) as a profit distribution, which is only taxed at capital gains rate.
So all in all it can save a lot of money, particularly if you have business expenses (which in a sole proprietorship are eaten up by the standard deduction)...
Note: You have to do payroll every month for it to be legit with the IRS, and you need to file taxes once you create the corporation, even if your situation changes and you don't use the corporation for anything. You also have to pay yourself a reasonable salary. If you're a single employee S Corp then it may be wise to pay yourself > 50% of the corp's gross income as salary, to avoid arousing suspicion that you're doing the s-corp purely as a tax shelter.