What type of entity should my operating company be for tax purposes?
Your operating company should be an S corporation for tax purposes if possible. The reason is, is that the IRS forces business owners to pay Social Security and Medicare tax on their earnings from operating businesses. The S corporation is the only entity where you can leverage the efforts of other employees to reduce the amount of income that’s subject to these taxes. With a maximum rate of 15.3% and the ever doubtfulness of future entitlement programs, this can be the gift that keeps on giving.