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  1. #1
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    Dec 2009
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    Default S-Corp vs LLC

    State of California

    What are the advantages of an S corp vs an LLC? I believe there are some Tax advantages etc..
    Thanks

  2. #2
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    Mar 2009
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    Key West, FL
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    Default Re: S-Corp vs LLC

    Tax wise they are both treated the same.

    However, I would never recommend a LLC form to anyone as it is only a partnership with protection of assets. It can turn into a nightmare situation.

  3. #3
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    Florida
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    Default Re: S-Corp vs LLC

    Since an LLC can elect to be taxed as a corporation and then it can elect subchapter S status, there is effectively no tax advantage to organizing an entity as an S corporation over an LLC.

  4. #4
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    Dec 2009
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    Default Re: S-Corp vs LLC

    doesnt an S corp not have to pay Social security taxes while an LLC does? That 15% right there. Not a small chunk of change.

  5. #5
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    Default Re: S-Corp vs LLC

    Quote Quoting Human ATM
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    doesnt an S corp not have to pay Social security taxes while an LLC does? That 15% right there. Not a small chunk of change.
    The subject of LLC's, S Corps can take a whole book to describe. I had a business through an LLC, others thru S Corps and C Corps. I bought a book from NOLO Press on LLC's, and that would give you a good start. See:

    http://www.nolo.com/legal-encycloped...ility-company/

    First, it is not a tax loophole that an S Corp pays FICA, and an LLC does not. If you elected to have the taxed as an S Corp, then you would have to follow the procedures for S Corp, so you would have to pay yourself a salary, make the appropriate deductions, and then pay the company match.

    For LLC's, if it is a single member, as a "disregard entity", you can choose to report via your personal tax returns, and on there, pay the self employment tax.

    If it is not single member, as I was, I elected to be taxed as a partnership, file the partnership returns, and then bring the income into the personal returns via the K1's, and pay the appropriate taxes that way.

    However, in some community property states, husbands and wives can file as a single member, with the advantage that they have to pay SS up to the limit of one person, rather than two. This is the one only perculiarity that I know of where taxes can be lower for going through the LLC.

    You didn't say what type of business you plan to go into. For instance, many real estate investors choose to have LLC's for liability protection, but choose to be taxed as an individual or partnership, NOT as an S Corp. This is because tax treatment for capital gains for corporations are much less advantageous compared to partherships and individuals.

    So to answer your question, choosing one versus the other has more to do with what you plan to do, your tax situation etc., and this I cannot answer from your simple post without copying entire chapters from the NOLO press book.

    Finally, LLC's are more informal as there are no formal requirements for annual meetings, and board resolutions. On the other extreme, for my "C Corp", I had to hold, write up annual meetings, and write up board resolutions for things I had to do, to follow the formalities of the Corp structure.

  6. #6
    Join Date
    Jul 2007
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    Florida
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    Default Re: S-Corp vs LLC

    Quote Quoting Human ATM
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    doesnt an S corp not have to pay Social security taxes while an LLC does? That 15% right there. Not a small chunk of change.
    No. There is no tax law specific to an LLC. It is taxed either as a disregarded entity (filing Schedule C on the sole owner's individual tax return), a partnership (default state of a multi-owner LLC) or as a coroporation by electing that status as I described previously. It affords maximum flexibility depending on what you are trying to accomplish. If you wish, your LLC can operate exactly as an S corp (as mine does) with regard to taxes.

    However, do not proceed under the assumption that an S corp does not have to pay FICA taxes. If you are an officer/owner of the corporation and provide services to the corporation then you are an employee and you are required ot pay yourself just as you would any corporation. You cannot work in the corporation and take all your income as owner dividends. That is not allowed. However, if you pay yourself a reasonable salary (similar to what you'd have to pay someone else for the same services) then you can take any excess as owner profit without paying employment taxes on it.

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