Which is best for you:
LLC vs. S-Corp
At every stop of your business, you will find yourself making a choice on what is the next best move. One of those decisions will be what to set your business up as. Will a S-Corp or LLC be the best fit for you? If you are on social media, you may hear a lot about LLC’s and assume that is best for you. When you are deciding which status is the best fit here are several important points to consider:
You can convert your LLC into an S-Corp later. An LLC may be easier for you to manage, especially if you have very few or no employees. Once you have expanded your business you can explore the possibility of an S-Corp.
With S- Corporations, dividends are not subjected to self-employment tax.
LLC’S have the option to be taxed as an S-corporation and can do this by complying with State filing laws and filing Form 2553 with the IRS..
An S- Corp is exempt from federal income tax other than tax on certain capital gains and passive income.
Both offer personal liability protection, which means creditors cannot go after the owner’s personal assets.
LLC’s can have an unlimited number of members. An S-Corp can have no more than 100 shareholders.
S-Corps must have a board of directors who oversee the organization of the company and hold regular meetings of shareholders and directors. However, all states allow a single shareholder to create and run a corporation. And all states allow it to have just one director as well. So you can be the sole shareholder, director and officer for your company.
A business must meet specific guidelines by the Internal Revenue Service to qualify as an S-Corp, such as shareholders owning 2% or more of a company must be paid a reasonable salary.
These are just a few of the differences to note, however before making any changes to your tax structure, it is best to consult with your Business Tax Accountant or Lawyer.
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