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My acct said the best way to go was to form an LLC and have it taxed as an S-corp. (I don't know the details of that, you'd have to ask a CPA)
The biggest advantage is of course getting around the self employement tax of 15.3%
Take half your profit as a salary and pay the 15.3% on it, take the other half as a dividend. You still have to pay fed and state on the dividend but not social security, so basically you're paying the same tax rates as a person making the same annual income as you without the self employment penalty.
He told me if I took more than half as a dividend, that if I got audited the IRS would make me re-report the numbers and pay the SS tax on the difference.
Also, Schedule C's get audited more than any other IRS form, especially if you take a home office deduction, so you're better off filing as anything other than a sole proprietor.
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