LLC or S-Corp (1 Viewer)

[tribecalledjeff]

I have a website where I sell sports picks and I want to incorporate so that I can write off expenses. I'm having trouble figuring out what structure to use. Thoughts/advice?

TIA

 

[Thorn]

Is it just you or do you have employees?

 

[tribecalledjeff]

Is it just you or do you have employees?

Just me.

 

[sbonomo]

S-corp. Jayrod did a nice writeup a while back on the difference s and tax benefits....you should pm him.

 

[Jayrod]

LLC is a legal structure with the state.

S-Corp is a tax election for the IRS.

An LLC can be either a sole proprietorship, a partnership or an S-Corp. To be an S-Corp, the entity must make an election and file a form with the IRS. Otherwise, by default, an LLC is treated as either a sole proprietorship (1 owner) or a partnership (multiple owners).

Sole proprietorships do not file their own tax return, but are included as a schedule C on your personal return. Partnerships and S-Corps file their separate returns and are called "pass-through" entities in that they never pay their own income tax, but instead pass that income on to the owners.

The main issue with an S-Corp is that you are required to pay yourself a "reasonable salary" and treat it as payroll which means you have to pay unemployment and file quarterly and register with the state and all that entails. However, any income above the payroll amount does not calculate into the self-emploiyment tax (15.3%). That can be a huge savings, especially if you are making a lot of money.

 

[eoMMan]

Single member LLC.....use schedule C. No corporate income tax return required.

 

[Idiot Boxer]

LLC is simpler, can 'check the box' for election of how to be taxed. Usually has a higher annual filing fee (check your state).

S-Corp, lower fee, same tax protection, same legal protection, greater meeting/documentation requirements.

 

[jon_mx]

LLC is a legal structure with the state.

S-Corp is a tax election for the IRS.

An LLC can be either a sole proprietorship, a partnership or an S-Corp. To be an S-Corp, the entity must make an election and file a form with the IRS. Otherwise, by default, an LLC is treated as either a sole proprietorship (1 owner) or a partnership (multiple owners).

Sole proprietorships do not file their own tax return, but are included as a schedule C on your personal return. Partnerships and S-Corps file their separate returns and are called "pass-through" entities in that they never pay their own income tax, but instead pass that income on to the owners.

The main issue with an S-Corp is that you are required to pay yourself a "reasonable salary" and treat it as payroll which means you have to pay unemployment and file quarterly and register with the state and all that entails. However, any income above the payroll amount does not calculate into the self-emploiyment tax (15.3%). That can be a huge savings, especially if you are making a lot of money.

Do LLC give you equivalent legal protection that an S-Corp would give? I think I would go S-Corp because as you showed it is possible to save on self-employment taxes. I am also more comfortable with the legal protection an S-Corp provides, but I assume you can get similar protection if you do the LLC correctly.

 

[Jayrod]

I have a website where I sell sports picks and I want to incorporate so that I can write off expenses. I'm having trouble figuring out what structure to use. Thoughts/advice?

TIA

And by the way, you can write off expenses whether you "incorporate" or not. By default the business is treated as a sole proprietorship where you have a separate form that you fill out that includes the business income and expenses. You can treat it just like a company in that you write off all of the same expenses a business would, but you don't have the setup expenses.

People usually to an LLC for legal liability reasons to protect your personal assets from lawsuits related to the business.

 

[Jayrod]

LLC is a legal structure with the state.

S-Corp is a tax election for the IRS.

An LLC can be either a sole proprietorship, a partnership or an S-Corp. To be an S-Corp, the entity must make an election and file a form with the IRS. Otherwise, by default, an LLC is treated as either a sole proprietorship (1 owner) or a partnership (multiple owners).

Sole proprietorships do not file their own tax return, but are included as a schedule C on your personal return. Partnerships and S-Corps file their separate returns and are called "pass-through" entities in that they never pay their own income tax, but instead pass that income on to the owners.

The main issue with an S-Corp is that you are required to pay yourself a "reasonable salary" and treat it as payroll which means you have to pay unemployment and file quarterly and register with the state and all that entails. However, any income above the payroll amount does not calculate into the self-emploiyment tax (15.3%). That can be a huge savings, especially if you are making a lot of money.

Do LLC give you equivalent legal protection that an S-Corp would give? I think I would go S-Corp because as you showed it is possible to save on self-employment taxes. I am also more comfortable with the legal protection an S-Corp provides, but I assume you can get similar protection if you do the LLC correctly.

I'm not sure if there is any additional legal protection from being an S-corp or not. It is really just an IRS designation AFAIK.

 

[tribecalledjeff]

LLC is simpler, can 'check the box' for election of how to be taxed. Usually has a higher annual filing fee (check your state).

S-Corp, lower fee, same tax protection, same legal protection, greater meeting/documentation requirements.

So I can set up an LLC and still elect to be treated as a S-Corp for tax purposes, thus avoiding the self-employment tax, yes?

 

[tribecalledjeff]

I have a website where I sell sports picks and I want to incorporate so that I can write off expenses. I'm having trouble figuring out what structure to use. Thoughts/advice?

TIA

And by the way, you can write off expenses whether you "incorporate" or not. By default the business is treated as a sole proprietorship where you have a separate form that you fill out that includes the business income and expenses. You can treat it just like a company in that you write off all of the same expenses a business would, but you don't have the setup expenses.

People usually to an LLC for legal liability reasons to protect your personal assets from lawsuits related to the business.

Interesting. Is claiming a home office included in this?

 

[Jayrod]

LLC is simpler, can 'check the box' for election of how to be taxed. Usually has a higher annual filing fee (check your state).

S-Corp, lower fee, same tax protection, same legal protection, greater meeting/documentation requirements.

So I can set up an LLC and still elect to be treated as a S-Corp for tax purposes, thus avoiding the self-employment tax, yes?

Yes. However you MUST pay a "reasonable salary" to yourself and jump through all of the hoops of payroll, including regular tax deposits with at least three entities and you have the additional expense of unemployment taxes which you would not have as a sole proprietorship.

And before you ask me what a "reasonable salary" is....that is the most subjective thing in the IRS code.

 

[jon_mx]

LLC is simpler, can 'check the box' for election of how to be taxed. Usually has a higher annual filing fee (check your state).

S-Corp, lower fee, same tax protection, same legal protection, greater meeting/documentation requirements.

So I can set up an LLC and still elect to be treated as a S-Corp for tax purposes, thus avoiding the self-employment tax, yes?

There is an election time period which you must meet. It may be 60 or 90 days after you file for you LLC, I am not sure, but you must declare to the IRS that you want to be treated like an S-Corp or you forever lose that right.

 

[Tom Hagen]

LLC is a legal structure with the state.

S-Corp is a tax election for the IRS.

An LLC can be either a sole proprietorship, a partnership or an S-Corp. To be an S-Corp, the entity must make an election and file a form with the IRS. Otherwise, by default, an LLC is treated as either a sole proprietorship (1 owner) or a partnership (multiple owners).

Sole proprietorships do not file their own tax return, but are included as a schedule C on your personal return. Partnerships and S-Corps file their separate returns and are called "pass-through" entities in that they never pay their own income tax, but instead pass that income on to the owners.

The main issue with an S-Corp is that you are required to pay yourself a "reasonable salary" and treat it as payroll which means you have to pay unemployment and file quarterly and register with the state and all that entails. However, any income above the payroll amount does not calculate into the self-emploiyment tax (15.3%). That can be a huge savings, especially if you are making a lot of money.

Do LLC give you equivalent legal protection that an S-Corp would give? I think I would go S-Corp because as you showed it is possible to save on self-employment taxes. I am also more comfortable with the legal protection an S-Corp provides, but I assume you can get similar protection if you do the LLC correctly.

I would be interested in the FFA legal community opinion on this. My understanding is that the LLC provides the same liability protection. In fact, the LLC may offer more protection because there is generally no requirement for things like shareholder meetings and keeping corporate minutes, the lack of which could make it easier to pierce the corporate veil.

 

[johnnycakes]

LLC is a legal structure with the state.

S-Corp is a tax election for the IRS.

An LLC can be either a sole proprietorship, a partnership or an S-Corp. To be an S-Corp, the entity must make an election and file a form with the IRS. Otherwise, by default, an LLC is treated as either a sole proprietorship (1 owner) or a partnership (multiple owners).

Sole proprietorships do not file their own tax return, but are included as a schedule C on your personal return. Partnerships and S-Corps file their separate returns and are called "pass-through" entities in that they never pay their own income tax, but instead pass that income on to the owners.

The main issue with an S-Corp is that you are required to pay yourself a "reasonable salary" and treat it as payroll which means you have to pay unemployment and file quarterly and register with the state and all that entails. However, any income above the payroll amount does not calculate into the self-emploiyment tax (15.3%). That can be a huge savings, especially if you are making a lot of money.

Do LLC give you equivalent legal protection that an S-Corp would give? I think I would go S-Corp because as you showed it is possible to save on self-employment taxes. I am also more comfortable with the legal protection an S-Corp provides, but I assume you can get similar protection if you do the LLC correctly.

I'm not sure if there is any additional legal protection from being an S-corp or not. It is really just an IRS designation AFAIK.

As long as the LLC is registered to do business in the state where it operates and it respects the LLC status by conducting business under that name, it should have the same liability protection as a corporation. That is, if the LLC is formed in Delaware but operating in New York, the LLC would need to register with the NY Secretary of State to be on record as conducting business in New York. of course, the same applies to a corporation... if it is formed in Delaware, it would also need to register where it conducts business as well. On the other hand, if it is formed in the same state in which it conducts business, it is automatically registered with that state's Secretary of State.

 

[Jayrod]

LLC is simpler, can 'check the box' for election of how to be taxed. Usually has a higher annual filing fee (check your state).

S-Corp, lower fee, same tax protection, same legal protection, greater meeting/documentation requirements.

So I can set up an LLC and still elect to be treated as a S-Corp for tax purposes, thus avoiding the self-employment tax, yes?

There is an election time period which you must meet. It may be 60 or 90 days after you file for you LLC, I am not sure, but you must declare to the IRS that you want to be treated like an S-Corp or you forever lose that right.

FALSE

You can make the election in any year, but you usually want to make it at the start of the year so you don't have to deal with 2 different tax treatments. There is a way around it if you want to do it mid year or something, but it is a bit risky....however I've never seen a company called out on it.

 

[(HULK)]

So, a non S-Corp LLC does or does not pay the SS tax? If so, so it pay it on all income, or just up to the cap (106K or whatever it is now)?

 

[jon_mx]

So, a non S-Corp LLC does or does not pay the SS tax? If so, so it pay it on all income, or just up to the cap (106K or whatever it is now)?

They do. All income on schedule C is subject to SS tax.

 

[Jayrod]

So, a non S-Corp LLC does or does not pay the SS tax? If so, so it pay it on all income, or just up to the cap (106K or whatever it is now)?

I assume you mean a sole proprietorship and yes, the caps are the same as if you were an employee. However, if you are pulling in that much net business income, you should probably go the S-Corp route.

ETA: And yes, the SS tax is paid as part of the Self-Employment tax. (12.6% of the 15.3%)

 

[jon_mx]

LLC is simpler, can 'check the box' for election of how to be taxed. Usually has a higher annual filing fee (check your state).

S-Corp, lower fee, same tax protection, same legal protection, greater meeting/documentation requirements.

So I can set up an LLC and still elect to be treated as a S-Corp for tax purposes, thus avoiding the self-employment tax, yes?

There is an election time period which you must meet. It may be 60 or 90 days after you file for you LLC, I am not sure, but you must declare to the IRS that you want to be treated like an S-Corp or you forever lose that right.

FALSE

You can make the election in any year, but you usually want to make it at the start of the year so you don't have to deal with 2 different tax treatments. There is a way around it if you want to do it mid year or something, but it is a bit risky....however I've never seen a company called out on it.

Not entirely. For new companies you must elect (Form 2553) 75 days after you form your company. For existing companies, you must file by March 15 of the new year, assuming calander year. I was wrong about not being able to change though.

 

[Pipes]

Selling sports picks sounds more like a hobby so I'd just set up an LLC since it's much simpler to file a schedule C rather than an 1120s plus you would need to file quarterly 941's, UI reports and W-2s. Unless you plan on netting 40K or more just go with the LLC.

 

[Jayrod]

LLC is simpler, can 'check the box' for election of how to be taxed. Usually has a higher annual filing fee (check your state).

S-Corp, lower fee, same tax protection, same legal protection, greater meeting/documentation requirements.

So I can set up an LLC and still elect to be treated as a S-Corp for tax purposes, thus avoiding the self-employment tax, yes?

There is an election time period which you must meet. It may be 60 or 90 days after you file for you LLC, I am not sure, but you must declare to the IRS that you want to be treated like an S-Corp or you forever lose that right.

FALSE

You can make the election in any year, but you usually want to make it at the start of the year so you don't have to deal with 2 different tax treatments. There is a way around it if you want to do it mid year or something, but it is a bit risky....however I've never seen a company called out on it.

Not entirely. For new companies you must elect (Form 2553) 75 days after you form your company. For existing companies, you must file by March 15 of the new year, assuming calander year. I was wrong about not being able to change though.

Again...there is a way to do it mid-year....but it requires a standard "we forgot to file on time" admission when you file your tax return. You can actually decide to do it at the end of the year and just make the election with your tax return. While not completely up to code (the IRS could challenge this if they wanted to), they have never challenged any of the clients I have done this for.

However, once you make the S-corp election, you may not return to a partnership or sole-proprietorship.

 

[Jayrod]

Selling sports picks sounds more like a hobby so I'd just set up an LLC since it's much simpler to file a schedule C rather than an 1120s plus you would need to file quarterly 941's, UI reports and W-2s. Unless you plan on netting 40K or more just go with the LLC.

 

[(HULK)]

So, a non S-Corp LLC does or does not pay the SS tax? If so, so it pay it on all income, or just up to the cap (106K or whatever it is now)?

I assume you mean a sole proprietorship and yes, the caps are the same as if you were an employee. However, if you are pulling in that much net business income, you should probably go the S-Corp route.

ETA: And yes, the SS tax is paid as part of the Self-Employment tax. (12.6% of the 15.3%)

My LLC is actually a partnership. We've had 0 income thus far so this hasn't really been on my mind as of yet. Once we launch, this will be something to think about.

Does the remaining 2.7% of the self employment tax continue after the SS cap?

I'm trying to see why an S-Corp is superior. From where I sit, it looks like a painful amount of extra paperwork, plus the expense on unemployement insurance, for what?

Lets say my company makes 500K in income (wouldn't this be a nice problem to have, lol)

My take is 300K, my partners is 200K.

If I'm an LLC, I pay 15.3 tax up front on the first 106K. Then 2.7% on the rest. Then, whatever is left (roughly 278K) is subject to my personal income tax rates. Correct?

If I'm a S-Corp, I pay myself a reasonable salary of 60K. On that I pay self employment tax of 15.3%. Then the remainder (roughly 291K) is subject to my personal income tax rates, correct? Plus, I have to pay unemployment insurance costs and probably a bunch of extra filing fees.

So, its looking like a roughly 10K in savings after everything on a 1/2 million in profit. Is that worth all of the extra headaches? Or do I have it wrong above?

 

[-fish-]

LLLP.

 

[tribecalledjeff]

Selling sports picks sounds more like a hobby so I'd just set up an LLC since it's much simpler to file a schedule C rather than an 1120s plus you would need to file quarterly 941's, UI reports and W-2s. Unless you plan on netting 40K or more just go with the LLC.

So what is even the benefit of an LLC if I can write off expenses without it?

 

[Jayrod]

Selling sports picks sounds more like a hobby so I'd just set up an LLC since it's much simpler to file a schedule C rather than an 1120s plus you would need to file quarterly 941's, UI reports and W-2s. Unless you plan on netting 40K or more just go with the LLC.

So what is even the benefit of an LLC if I can write off expenses without it?

legal protection

 

[tribecalledjeff]

Selling sports picks sounds more like a hobby so I'd just set up an LLC since it's much simpler to file a schedule C rather than an 1120s plus you would need to file quarterly 941's, UI reports and W-2s. Unless you plan on netting 40K or more just go with the LLC.

So what is even the benefit of an LLC if I can write off expenses without it?

legal protection

So if I'm not worried about getting sued, there's no reason to even make an LLC?

Thanks to everyone in this thread for their responses.

 

[Pipes]

So, a non S-Corp LLC does or does not pay the SS tax? If so, so it pay it on all income, or just up to the cap (106K or whatever it is now)?

I assume you mean a sole proprietorship and yes, the caps are the same as if you were an employee. However, if you are pulling in that much net business income, you should probably go the S-Corp route.

ETA: And yes, the SS tax is paid as part of the Self-Employment tax. (12.6% of the 15.3%)

My LLC is actually a partnership. We've had 0 income thus far so this hasn't really been on my mind as of yet. Once we launch, this will be something to think about.

Does the remaining 2.7% of the self employment tax continue after the SS cap?

I'm trying to see why an S-Corp is superior. From where I sit, it looks like a painful amount of extra paperwork, plus the expense on unemployement insurance, for what?

Lets say my company makes 500K in income (wouldn't this be a nice problem to have, lol)

My take is 300K, my partners is 200K.

If I'm an LLC, I pay 15.3 tax up front on the first 106K. Then 2.7% on the rest. Then, whatever is left (roughly 278K) is subject to my personal income tax rates. Correct?

If I'm a S-Corp, I pay myself a reasonable salary of 60K. On that I pay self employment tax of 15.3%. Then the remainder (roughly 291K) is subject to my personal income tax rates, correct? Plus, I have to pay unemployment insurance costs and probably a bunch of extra filing fees.

So, its looking like a roughly 10K in savings after everything on a 1/2 million in profit. Is that worth all of the extra headaches? Or do I have it wrong above?

That's basically it. You save 15.3% on the difference of the salary you actually take and the social security wage base. You also pay unemployment tax on your wages which depending on your state could be close to a grand between federal & state. Plus you get into the whole argument that Jayrod mentioned about what is a reasonable salary. I'm not sure if 60K cuts it if you are taking an additional 240K of distributions above and beyond your salary. I'm not in the tax business so I'm not sure how the IRS would look at that but I think the IRS would frown upon that.

 

[johnnycakes]

There are a lot of differences for tax purposes between an LLC and an S-Corp. I really don't feel like getting too much into it because i know some jemoke is going to nit-pick words or come up with some inane exception to make it look like I don't know what I'm talking about.

But briefly...

Division of income.... if there is more than one member (LLC), the default status is a partnership. Partnerships have a lot more flexibility as to allocation of income and deductions than does an S-Corporation, which must allocate income pro-rata according to ownership percentages.

Related to the foregoing, S Corporations may only have one class of stock, so everyone has equal rights. LLCs may have many levels of partnership interest with varying schemes of allocating income & expenses, so long as the 'substantial economic effect' tests of §704(b) are met. There's some light reading for you... §704(b).

If you finance any of your business using debt (from a third party), you may not be able to deduct all of your losses as an S-Corporation because debt guaranteed by a shareholder is not considered "at risk" for tax purposes. An LLC has no such limitation, however.

There's lots more, but that's enough to give you guys something to chew on.

 

[Jayrod]

So, a non S-Corp LLC does or does not pay the SS tax? If so, so it pay it on all income, or just up to the cap (106K or whatever it is now)?

I assume you mean a sole proprietorship and yes, the caps are the same as if you were an employee. However, if you are pulling in that much net business income, you should probably go the S-Corp route.

ETA: And yes, the SS tax is paid as part of the Self-Employment tax. (12.6% of the 15.3%)

My LLC is actually a partnership. We've had 0 income thus far so this hasn't really been on my mind as of yet. Once we launch, this will be something to think about.

Does the remaining 2.7% of the self employment tax continue after the SS cap?

I'm trying to see why an S-Corp is superior. From where I sit, it looks like a painful amount of extra paperwork, plus the expense on unemployement insurance, for what?

Lets say my company makes 500K in income (wouldn't this be a nice problem to have, lol)

My take is 300K, my partners is 200K.

If I'm an LLC, I pay 15.3 tax up front on the first 106K. Then 2.7% on the rest. Then, whatever is left (roughly 278K) is subject to my personal income tax rates. Correct?

If I'm a S-Corp, I pay myself a reasonable salary of 60K. On that I pay self employment tax of 15.3%. Then the remainder (roughly 291K) is subject to my personal income tax rates, correct? Plus, I have to pay unemployment insurance costs and probably a bunch of extra filing fees.

So, its looking like a roughly 10K in savings after everything on a 1/2 million in profit. Is that worth all of the extra headaches? Or do I have it wrong above?

Your math is slightly off, but the 10K savings is accurate on your portion ($300K). Your partner would experience something around $8K savings as well and you would both share in the burden of the payroll process.

And there are all inclusive payroll companies that will do this for you for about $50/month. They do the payroll and make sure all taxes get paid on time. You are already filing a 1065 partnership return, so a change to the 1120S is no extra work/cost.

 

[Jayrod]

There are a lot of differences for tax purposes between an LLC and an S-Corp. I really don't feel like getting too much into it because i know some jemoke is going to nit-pick words or come up with some inane exception to make it look like I don't know what I'm talking about.

But briefly...

Division of income.... if there is more than one member (LLC), the default status is a partnership. Partnerships have a lot more flexibility as to allocation of income and deductions than does an S-Corporation, which must allocate income pro-rata according to ownership percentages.

Related to the foregoing, S Corporations may only have one class of stock, so everyone has equal rights. LLCs may have many levels of partnership interest with varying schemes of allocating income & expenses, so long as the 'substantial economic effect' tests of §704(b) are met. There's some light reading for you... §704(b).

If you finance any of your business using debt, you may not be able to deduct all of your losses as an S-Corporation because debt guaranteed by a shareholder is not considered "at risk" for tax purposes. An LLC has no such limitation, however.

There's lots more, but that's enough to give you guys something to chew on.

LLC is not a tax treatment. It is a legal formation designation as set forth by the state.

Comparing an LLC to an S-corp is comparing apples and oranges. It appears as if you are comparing an S-corp to an LLC taxed as a partnership, which by all means have immense differences in taxation.

 

[johnnycakes]

There are a lot of differences for tax purposes between an LLC and an S-Corp. I really don't feel like getting too much into it because i know some jemoke is going to nit-pick words or come up with some inane exception to make it look like I don't know what I'm talking about.

But briefly...

Division of income.... if there is more than one member (LLC), the default status is a partnership. Partnerships have a lot more flexibility as to allocation of income and deductions than does an S-Corporation, which must allocate income pro-rata according to ownership percentages.

Related to the foregoing, S Corporations may only have one class of stock, so everyone has equal rights. LLCs may have many levels of partnership interest with varying schemes of allocating income & expenses, so long as the 'substantial economic effect' tests of §704(b) are met. There's some light reading for you... §704(b).

If you finance any of your business using debt, you may not be able to deduct all of your losses as an S-Corporation because debt guaranteed by a shareholder is not considered "at risk" for tax purposes. An LLC has no such limitation, however.

There's lots more, but that's enough to give you guys something to chew on.

LLC is not a tax treatment. It is a legal formation designation as set forth by the state.

Comparing an LLC to an S-corp is comparing apples and oranges.

Case in point.

 

[Jayrod]

There are a lot of differences for tax purposes between an LLC and an S-Corp. I really don't feel like getting too much into it because i know some jemoke is going to nit-pick words or come up with some inane exception to make it look like I don't know what I'm talking about.

But briefly...

Division of income.... if there is more than one member (LLC), the default status is a partnership. Partnerships have a lot more flexibility as to allocation of income and deductions than does an S-Corporation, which must allocate income pro-rata according to ownership percentages.

Related to the foregoing, S Corporations may only have one class of stock, so everyone has equal rights. LLCs may have many levels of partnership interest with varying schemes of allocating income & expenses, so long as the 'substantial economic effect' tests of §704(b) are met. There's some light reading for you... §704(b).

If you finance any of your business using debt, you may not be able to deduct all of your losses as an S-Corporation because debt guaranteed by a shareholder is not considered "at risk" for tax purposes. An LLC has no such limitation, however.

There's lots more, but that's enough to give you guys something to chew on.

LLC is not a tax treatment. It is a legal formation designation as set forth by the state.

Comparing an LLC to an S-corp is comparing apples and oranges.

Case in point.

You are correct in your points, but you are using the term "LLC" incorrectly, which is VERY confusing to the general public.

Their is a very important step you are ignoring in that an LLC can choose to become an S-corp and treated as such or remain as a partnership (which you seem to be implying).

 

[johnnycakes]

There are a lot of differences for tax purposes between an LLC and an S-Corp. I really don't feel like getting too much into it because i know some jemoke is going to nit-pick words or come up with some inane exception to make it look like I don't know what I'm talking about.

But briefly...

Division of income.... if there is more than one member (LLC), the default status is a partnership. Partnerships have a lot more flexibility as to allocation of income and deductions than does an S-Corporation, which must allocate income pro-rata according to ownership percentages.

Related to the foregoing, S Corporations may only have one class of stock, so everyone has equal rights. LLCs may have many levels of partnership interest with varying schemes of allocating income & expenses, so long as the 'substantial economic effect' tests of §704(b) are met. There's some light reading for you... §704(b).

If you finance any of your business using debt, you may not be able to deduct all of your losses as an S-Corporation because debt guaranteed by a shareholder is not considered "at risk" for tax purposes. An LLC has no such limitation, however.

There's lots more, but that's enough to give you guys something to chew on.

LLC is not a tax treatment. It is a legal formation designation as set forth by the state.

Comparing an LLC to an S-corp is comparing apples and oranges.

I've been doing this crap since before you were born, sonny. Where did I say LLC was a tax treatment? Did I say that?

People are asking the differences between tax treatment of an LLC and an S Corp. I gave some valid points. You form an LLC, and there are tax consequences to that formation. Single-member LLC defaults to a proprietorship. Multi-member LLC defaults to a partnership. Either one can elect to be treated as a corporation and may be eligible to make an S election.

 

[johnnycakes]

There are a lot of differences for tax purposes between an LLC and an S-Corp. I really don't feel like getting too much into it because i know some jemoke is going to nit-pick words or come up with some inane exception to make it look like I don't know what I'm talking about.

But briefly...

Division of income.... if there is more than one member (LLC), the default status is a partnership. Partnerships have a lot more flexibility as to allocation of income and deductions than does an S-Corporation, which must allocate income pro-rata according to ownership percentages.

Related to the foregoing, S Corporations may only have one class of stock, so everyone has equal rights. LLCs may have many levels of partnership interest with varying schemes of allocating income & expenses, so long as the 'substantial economic effect' tests of §704(b) are met. There's some light reading for you... §704(b).

If you finance any of your business using debt, you may not be able to deduct all of your losses as an S-Corporation because debt guaranteed by a shareholder is not considered "at risk" for tax purposes. An LLC has no such limitation, however.

There's lots more, but that's enough to give you guys something to chew on.

LLC is not a tax treatment. It is a legal formation designation as set forth by the state.

Comparing an LLC to an S-corp is comparing apples and oranges.

Case in point.

You are correct in your points, but you are using the term "LLC" incorrectly, which is VERY confusing to the general public.

Their is a very important step you are ignoring in that an LLC can choose to become an S-corp and treated as such or remain as a partnership (which you seem to be implying).

I said the DEFAULT status was something. That is absolutely correct.

Now, instead of offering valuable advice, we can now quibble over words like a couple of freaking idiots... exactly why I didn't even want to get involved here.

Another example of no good deed going unpunished.

since you're the authority here, you take it from here. You obviously have a much better handle on this than I.

 

[Jayrod]

There are a lot of differences for tax purposes between an LLC and an S-Corp. I really don't feel like getting too much into it because i know some jemoke is going to nit-pick words or come up with some inane exception to make it look like I don't know what I'm talking about.

But briefly...

Division of income.... if there is more than one member (LLC), the default status is a partnership. Partnerships have a lot more flexibility as to allocation of income and deductions than does an S-Corporation, which must allocate income pro-rata according to ownership percentages.

Related to the foregoing, S Corporations may only have one class of stock, so everyone has equal rights. LLCs may have many levels of partnership interest with varying schemes of allocating income & expenses, so long as the 'substantial economic effect' tests of §704(b) are met. There's some light reading for you... §704(b).

If you finance any of your business using debt, you may not be able to deduct all of your losses as an S-Corporation because debt guaranteed by a shareholder is not considered "at risk" for tax purposes. An LLC has no such limitation, however.

There's lots more, but that's enough to give you guys something to chew on.

LLC is not a tax treatment. It is a legal formation designation as set forth by the state.

Comparing an LLC to an S-corp is comparing apples and oranges.

I've been doing this crap since before you were born, sonny. Where did I say LLC was a tax treatment? Did I say that?

People are asking the differences between tax treatment of an LLC and an S Corp. I gave some valid points. You form an LLC, and there are tax consequences to that formation. Single-member LLC defaults to a proprietorship. Multi-member LLC defaults to a partnership. Either one can elect to be treated as a corporation and may be eligible to make an S election.

I don't give a #### how long you've been doing this. The entire LLC concept wasn't even fully developed until 1988 and there have been numerous tax changes since then.

When you say LLC and don't designate it with partnership, sole proprietorship or S-corp, people get confused as hell.

 

[tribecalledjeff]

Selling sports picks sounds more like a hobby so I'd just set up an LLC since it's much simpler to file a schedule C rather than an 1120s plus you would need to file quarterly 941's, UI reports and W-2s. Unless you plan on netting 40K or more just go with the LLC.

So what is even the benefit of an LLC if I can write off expenses without it?

legal protection

So if I'm not worried about getting sued, there's no reason to even make an LLC? Thanks to everyone in this thread for their responses.

Bump.

 

[Jayrod]

Selling sports picks sounds more like a hobby so I'd just set up an LLC since it's much simpler to file a schedule C rather than an 1120s plus you would need to file quarterly 941's, UI reports and W-2s. Unless you plan on netting 40K or more just go with the LLC.

So what is even the benefit of an LLC if I can write off expenses without it?

legal protection

So if I'm not worried about getting sued, there's no reason to even make an LLC? Thanks to everyone in this thread for their responses.

Bump.

in your case, that is correct

 

[Jayrod]

There are a lot of differences for tax purposes between an LLC and an S-Corp. I really don't feel like getting too much into it because i know some jemoke is going to nit-pick words or come up with some inane exception to make it look like I don't know what I'm talking about.

But briefly...

Division of income.... if there is more than one member (LLC), the default status is a partnership. Partnerships have a lot more flexibility as to allocation of income and deductions than does an S-Corporation, which must allocate income pro-rata according to ownership percentages.

Related to the foregoing, S Corporations may only have one class of stock, so everyone has equal rights. LLCs may have many levels of partnership interest with varying schemes of allocating income & expenses, so long as the 'substantial economic effect' tests of §704(b) are met. There's some light reading for you... §704(b).

If you finance any of your business using debt, you may not be able to deduct all of your losses as an S-Corporation because debt guaranteed by a shareholder is not considered "at risk" for tax purposes. An LLC has no such limitation, however.

There's lots more, but that's enough to give you guys something to chew on.

LLC is not a tax treatment. It is a legal formation designation as set forth by the state.

Comparing an LLC to an S-corp is comparing apples and oranges.

Case in point.

You are correct in your points, but you are using the term "LLC" incorrectly, which is VERY confusing to the general public.

Their is a very important step you are ignoring in that an LLC can choose to become an S-corp and treated as such or remain as a partnership (which you seem to be implying).

I said the DEFAULT status was something. That is absolutely correct.

Now, instead of offering valuable advice, we can now quibble over words like a couple of freaking idiots... exactly why I didn't even want to get involved here.

Another example of no good deed going unpunished.

since you're the authority here, you take it from here. You obviously have a much better handle on this than I.

I don't doubt you know your stuff, but your lack of detail in explaining is exactly why people don't understand this stuff. I see CPAs and Lawyers do it all the time....they see this stuff every day and it is like elementary crap to them, but if you don't take the time to point out the basics, a common person gets confused as hell. If you just say "LLC" and assume everyone understands you mean "default treatment of LLCs" you have already lost your audience.

 

[Chemical X]

hey, i've not read all the replies here, but my understanding outside of taxation purposes of why you would want to be an LLC is for personal liabilty purposes, as such:

An LLC is viewed as a legal entity separate from its individual members or owners. Similar to shareholders of a corporation, an LLC owner is not personally liable for the LLC’s debts or legal liabilities. The LLC owner may lose their capital contribution to the business, like shareholders. However, unlike a sole proprietor or general partner, an LLC’s legal obligations usually do not put the LLC owner’s personal assets, such as a home or individual bank account, at risk. As with other business organizations, you may still be personally liable in some instances, such as when you personally guarantee a business debt or fail to use due care resulting in harm to a third party or a breach of your duties to your LLC.

this is important especially if you decide to become a landlord. for each and every property you own, you should establish a separate LLC.

 

[lumpy19]

Selling sports picks sounds more like a hobby so I'd just set up an LLC since it's much simpler to file a schedule C rather than an 1120s plus you would need to file quarterly 941's, UI reports and W-2s. Unless you plan on netting 40K or more just go with the LLC.

So what is even the benefit of an LLC if I can write off expenses without it?

legal protection

So if I'm not worried about getting sued, there's no reason to even make an LLC? Thanks to everyone in this thread for their responses.

Bump.

If I sign up and you lose I'm suing the #### out of you

 

[Steve Tasker]

There's some light reading for you... §704(b).

Piece of cake....