What are the differences between being established as an LLC and electing to be taxed as an S Corp, and being established as an S Corp
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What are the differences between being established as an LLC and electing to be taxed as an S Corp, and being established as an S Corp
S-corps require a lot of paperwork. You also need to have some sort of capability of how to run a corporation including securities, the SEC, regulation, dividends, and much, much more. Corporations in general are very expensive to start. A lot of people spend upwards of $250,000 in legal fees to make sure everything is correctly filed. Judging by your past posts, stick with an LLC. Hell, go with a sole-proprietorship if you can.
Taxes for an LLC and an S corp are pretty similar. Both are pass through entities and the income just passes through to your individual tax return. If there are more than one owner (shareholder) then the income passes through in proportion to your ownership. You can take excess funds as distributions and since you payed the income tax as you earned it there are no taxes
A C corp is different. The corporation pays taxes in it's income and you pay taxes on any wages or dividends. A C-Corp is more suitable when there are many shareholders. If there is only one an S-Corp or LLC would be the better way to go.
You can download the forms from your state to file for an LLC or Corp. The paperwork for an S Corp or C Corp is identical. You actually form the corporation and then file with the IRS for your tax status if you want to be taxed as an S-Corp
You can fill out the paper work and do everything yourself for a few hundred dollars.
You can use legal zoom and do it for perhaps $ 500.00
You can have a lawyer do it for $ 1000.00 to $, 3000.00
I have had a lawyer do it and I have done it myself. It is pretty simple. I would not use a lawyer again if I ever wanted to do another.
So there really is no benefit to having an S Corp over an LLC and elect to be taxed as an S Corp?
Both an LLC and an S-corp have a lot of similarity in the protection they give and the way the taxes are handled. If someone is thinking their business could grow large and may at some time want to go public or may seek outside investment the S Corp is the better choice otherwise an LLC is a good choice.
If you are concerned about potential liabilities (e.g., could your customers get hurt or die?), then I would recommend talking to a lawyer to determine which form of organization (LLC vs. Corporation) might give you better protection. For my business, we chose the corporation.