If A, an entertainer, were averaging $1 million a year of taxable income from his business, would you advise A to incorporate as a device to save taxes? Would you advise A to make an S election for the corporation? To help you answer these questions, compare the net after tax cash A would have after a full year (a) as a sole proprietor, (b) as the shareholder and only employee of an S corporation that pays him a $1 million salary, or (c) as the shareholder and only employee of a C corporation that pays him all of its after tax income as salary. Would he do better if he used a C corporation that paid him a $500,000 salary and he either received the maximum possible dividend or sold the stock the next year? What would result if he took a $500,000 salary from his S corporation and sold the stock the next year? This question is comparing various tax regimes in the Code, the application of the current tax rate and the consideration of the advisability of an S election.

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