If a sole proprietor converts their business to an S Corporation, how is their Income Taxed?
1) Compensation for services is taxed as wages reported on Form W-2. The owner's share of the business profit is reported on Schedule K-1 and taxed as ordinary income.
2) Compensation for services is reported on Schedule K-1 and subject to ordinary income tax and self employment tax.
3) All Income from the business is reported on Schedule C (Form 1040) and is subject to ordinary income tax and self-employment tax.
4) All income from the business is taxed to the business. The business owner pays no income tax or self-empoyment tax.\%, 12 \) month note for this amount, with the intierest to be paid on the m