LLC vs. S Corporation

While LLCs and S corporations two terms are often discussed side-by-side, they actually refer to different aspects of a business. An LLC is a type of business entity, while an S corporation is a tax classification. It lets the Internal Revenue Service (IRS) know that your business should be taxed as a partnership.

1. Which is better an LLC or S Corp?
2. Should my LLC be an S Corp?
3. Why would you choose an S corporation?
4. Why an S Corp over an LLC?
5. What are the disadvantages of an S Corp?
6. Who pays more taxes LLC or S Corp?
7. What is the downside of an LLC?
8. Am I considered self-employed if I own an S Corp?
9. What happens if my LLC has no money?

Which is better an LLC or S Corp?

Key takeaway: Having your LLC taxed as an S corporation can save you money on self-employment taxes. However, you will have to file an individual S-corp tax return, which means paying your CPA to file an additional form. An S-corp is also less structurally flexible than an LLC.

Should my LLC be an S Corp?

Although being taxed like an S corporation is probably chosen the least often by small business owners, it is an option. For some LLCs and their owners, this can actually provide a tax saving≈particularly if the LLC operates an active trade or business and the payroll taxes on the owner or owners is high.

Why would you choose an S corporation?

One major advantage of an S corporation is that it provides owners limited liability protection, regardless of its tax status. Limited liability protection means that the owners' personal assets are shielded from the claims of business creditors—whether the claims arise from contracts or litigation.

Why an S Corp over an LLC?

Advantages of S corps over LLCs

S corporations have some advantages over LLCs. It can be easier to obtain outside funding as some investors and banks prefer to invest in corporations than LLCs. ... LLC owners, in contrast, pay self-employment taxes, which can result in a higher overall tax liability.

What are the disadvantages of an S Corp?

S corporation disadvantages

• Formation and ongoing expenses. ...
• Tax qualification obligations. ...
• Calendar year. ...
• Stock ownership restrictions. ...
• Closer IRS scrutiny. ...
• Less flexibility in allocating income and loss. ...
• Taxable fringe benefits.

Who pays more taxes LLC or S Corp?

S Corps have more advantageous self-employment taxes than LLC's. S Corp owners can be considered employees and paid “a reasonable salary.” FICA taxes are taken out and paid on the amount of the salary.

What is the downside of an LLC?

Profits subject to social security and medicare taxes. In some circumstances, owners of an LLC may end up paying more taxes than owners of a corporation. Salaries and profits of an LLC are subject to self-employment taxes, currently equal to a combined 15.3%.

Am I considered self-employed if I own an S Corp?

Technically, you are self-employed if your income comes from business you engage in as an individual or sole proprietor vs LLC, or as a general partner in a business. ... If you own and operate a corporation, however, you are not technically self-employed, but an owner-employee of the corporation.

What happens if my LLC has no money?

But even though an inactive LLC has no income or expenses for a year, it might still be required to file a federal income tax return. LLC tax filing requirements depend on the way the LLC is taxed. An LLC may be disregarded as an entity for tax purposes, or it may be taxed as a partnership or a corporation.