There are several factor differences to keep in mind when you’re thinking about setting up an LLC as an S-corp. LLC and S corporation are not an either-or comparison–you can structure and operate your business as an LLC but still be taxed as an S-corp. If your business is an LLC, S-corp taxation allows you to be a company employee, potentially saving money on taxes. If your business is structured as a corporation, S-corp taxation allows you to avoid having company profits taxed at both the corporate and shareholder level. ![]() S-corp taxation can have advantages for the owners of both corporations and LLCs. Shareholders cannot be corporations, partnerships or non-resident aliens.Shareholders can be individuals and certain trusts and estates.You cannot have more than 100 shareholders aka owners.Not all businesses qualify to be taxed as S-corps. Instead, company profits pass through to owners’ personal tax returns. An S-corp doesn’t pay corporate income tax such as a traditional C-corp. Both LLCs and corporations can be taxed as an S-corp. What Is an S-corp?Īn S corporation is not a business entity but a tax classification. To learn more about LLCs, including how to set one up, see our guide. ![]() However, an LLC can also elect to be taxed as an S corporation (if it qualifies) or a C corporation (C-corp). Instead, they’re usually taxed in the same way as sole proprietorships or partnerships, depending on whether the LLC has one owner or multiple owners. Unlike partnerships and corporations, LLCs don’t have their own IRS tax category. “The LLC is the most recent form of entity that’s been available, and it started to get a lot more popular in the mid to late 1990s,” explained Chris Paris, a tax partner and CPA at the professional services firm Moss Adams. They have more flexible management and profit-sharing options than corporations, yet they provide liability protection that’s not available to sole proprietorships or general partnerships. LLCs are a common business structure for small and medium businesses and entrepreneurs because of their simplicity and flexibility. You can think of an LLC as a hybrid between a partnership and a corporation. The owners of an LLC are called members, and LLCs can be single-member or multiple-member owned. An LLC is considered a distinct entity, which means that there is a financial barrier between the company and the owner. What Is an LLC?Īn LLC, or limited liability company, is a legal business structure that protects the owner’s personal assets from the company’s debts. ![]() Here are some factors to consider when making this decision and what’s involved in the process. When starting a business, it’s important to evaluate your options from both a legal and a tax perspective. Both LLCs and corporations can elect S-corp taxation by filing a form with the IRS. On 's Website LLC and S-corp: Basic DefinitionsĪn LLC is a legal business structure while S corporation is a tax classification that’s available to some small businesses.
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