I love it when accountants are telling us what lawyers say and lawyers are giving tax advice… they both do this all the time. Go figure.
Fun fun haha
s corp & an LLC are taxed at the same rate, as profits are passed thru to the individual…LLC are great if you have partners or investors…there is a ‘General/Operating Manager’ and they have specific duties…you can also define other responsibilities for other members of the LLC if needed…and its easier to raise $$$ with an LLC vs a s corp…raising $$$ is a whole 'nuther discussion…
S Corp since day 1 and for that matter I have all my shops under the same one. This does save me tons in insurance and payroll expenses but potentially higher exposure.
Yes. There are some advantages to it. In PA, the government just did away with the lease tax that was charged to s-corp. So now we save a few extra $1000’s a year! Be sure to check your state tax laws, not just the federal tax laws.
While this statement is true with respect to income tax, that is not the whole picture. S-corp dividends are not subject to Fica/Self-employment tax. LLC distributions are subject to that tax when the income is “active” in nature. Income from an operating business is “active”.
Putting aside the issue of how much W2 income to pay yourself before calculating the profit of the corp that will be passed though to the individual, let’s say that an additional 40K in profits would be distributed either as an S-Corp dividend or as a member distribution in an LLC, the tax on the income from the LLC would be about $6,000 more than on the income from the S-Corp due to the FICA/Self-employment tax.
Yes, in some cases you could make the election in an LLC to be taxed as an S-Corp but as pointed out above that is not always allowed.
There is no significant difference in how much effort it takes to either create or maintain either entity. Both are easy to do.
There is no difference in the liability protection afforded by the two entities.
Fund raising in an LLC could be easier due to the ability to direct income disproportionately to ownership and set up a deal that works for everyone. This could be an important consideration in several common scenarios. For example, a “friendly” investor might put up half the cash as an investment (rather than debt) but only take 25% of the business and agree to a 10% distribution. This would be impossible under an S-Corp (without manipulating the W2 earnings of the operating owner). Or, another investor might put up half the cash and insist on 51% of the business (control) and a flat 20K income year from profit. Also impossible under an S-Corp (again, without manipulation of the W2 earnings of the operating owner). That flexibility in structure for deal making could make a big difference in attracting an investor.
It really comes back to the question of whether you need the ability to pay out income in some way other than by ownership percentage.
Disclaimer: I am not a CPA or an attorney (and I have already said several times anyone considering these things should consult with both). I DO have nearly 30 years experience in owning both S-Corp and LLC entities and the advice of my attorneys and CPA over those years as well as quite a few years as a S.C.O.R.E. counselor and business broker dealing with these questions.
Having had and still operating C-Corps, S-Corps and LLC’s, C-Corps can also elect to be treated as S-Corps. I wouldn’t even bring up the C-Corp in your situation, attorneys like them. S-Corp is the way to go !