Tax Business

Operating a business is a very specific decision where you are a sole proprietor or general partnership offers simplicity, but that comes at the cost of not having a separation between you as an individual and your company.
Are there other options? There are alternate options that include popular entity types like the Limited Liability Company, C Corporation, and S Corporation.
For entrepreneurs who want to protect their personal assets and have tax flexibility, registering as a legal business entity, such as an LLC, S Corp, or C Corp, is well worth exploring. Continue reading because I’m going to explain all these in simple language and not using technical jargon, so you gain some knowledge of what they have to offer.
Keep in mind that what I share here is for informational purposes only and is in no way meant as legal or tax advice, as this is specific to every individual. You should consult an attorney and accountant or tax professional to ensure you understand your options as you decide which structure will be best for your business.

What is an LLC?

The Limited Liability Company (LLC) is one of the popular business structure with many small business owners.

Key Features

It is less complicated and less costly to establish and maintain than a corporation, and it limits personal liability and provides tax treatment flexibility. If being a sole proprietor or partner isn’t giving you peace of mind, becoming an LLC offers some of the benefits that corporations enjoy—without the complexity.

As this form of business is a pass-through entity – which means that by default, your LLC will be taxed in the same way as a sole proprietorship or general partnership. For tax purposes, the IRS will view your company as a disregarded entity. In other words, all income and profit or loss will pass through directly to your personal income tax return and will be reported on Sch C on Form 1040.

What Is an S Corporation:

The S Corporation isn’t a legal business entity type in and of itself but rather a special election made by either an LLC or C Corporation with the IRS.

Whereas there are quite a few benefits of doing business as an S-Corp

Because your business is formed as either an LLC or C corporation, it’s considered a legal entity separate from its owners. That means owners’ personal assets have protection against lawsuits and debts of your company.

An LLC or a Corporation that chooses an S Corp election will have its profits and losses flow through to its shareholders (owners), who then report them on their personal income tax returns. Like an LLC, your business will not pay federal taxes at the corporate level. But unlike an LLC, not all income is subject to self-employment taxes—only owners’ salaries are.

What Is a C Corporation?

Although more complicated to operate, a C Corporation provides the most personal liability protection for shareholders in a company. The IRS considers a C Corporation an independent taxpayer and associates its income and expenses with the business, not its owners (shareholders). Ownership of a C Corporation is established through issuing shares of stock, either held privately or publicly.

Key Features

Corporation (unless it files for the S Corporation election) must pay federal income tax on company profits at the corporate tax rate. In some circumstances, the corporate tax rate may be lower than paying the individual tax rate on business profits (as with an LLC). As a C Corp, your company may be eligible for tax deductions not available to other business structures.
The corporation has more potential to raise capital and grow. It can issue multiple classes of stock, and it may have an unlimited number of shareholders.

What’s Right for Your Company?

Make no mistake there are a few drawbacks and limitation towards the eligibility for becoming an S-Corp entity, not all LLCs or corporation qualifies.

In order to know which specific entity is the best suited for you, lets jump on a call and discuss your situation which will help you in making the right decision.