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Let me repeat, his marginal tax rate on both ordinary income and Schedule E income are identical. If they were not, why in the world do you think he is doing this?

I don't know about the tax treatment... it has been too long since I studied tax law. I can, however, suggest another reason "why in the world" Edwards would set up his practice as a corporation. It's a liability issue; for example, if he is sued for malpractice, then it can (I think) protect some of his personal assets. There is, of course, something called "piercing the corporate veil" to get at personal assets, but it can be an uphill battle as I understand it. Oftentimes a corporation is set up for liability issues as much as tax ones.

Yes, one of the reasons for setting up a corporation, even a Sub. S corporation is to limit one’s liability. However, I don’t believe for a moment that a hot-shot personal injury lawyer has the kind of liability issues that a manufacturer would have. Lawyers don’t get sued that much, especially successful trial lawyers who have a reputation for winning their cases.

Then there is the matter of the income streams from the corporation: classifying roughly 10% of the income to salary (subject to Medicare tax) and 90% to Trade & Business Income (not subject to the Medicare tax) is prima fascia evidence of a tax scam because there is such a huge disparity. For each $1 million dollars reclassified this way, Edwards saved $29,000.

By the way, I checked my facts with a CPA before posting on this issue. It’s not some amateur spouting off.