What Will Save Me More Money LLC or S-corporation?

When setting up a business, one of the most definitive questions that you will likely need to think of is how you set up your business. For most, a Limited Liability Corporation (LLC), or an S-Corporation model is the most common. However, if you are unsure what this means or entails, it’s important that you read on – it can be quite an important decision for your business.

Asset Protection

The main reason to choose either is to help protect yourself and keep yourself a secure as possible. Basically, the first option – an LLC – is claiming that you cannot be responsible for any more investment outside of your own that comes into the company. It basically means that, if everything goes wrong, you aren’t liable for the money you never put in. In a nightmare scenario, they can make sure that you are not going to be left liable for money that you could never possible hope to achieve.

Also, they help to reduce the need for personal or corporate taxation. That’s very important, but in an S-Corporation the owners also pay salaries and receive dividends from any other profits made. With an LLC, it all passes through, so everything that is reported on the personal income tax return of each member.

Both, though, offer the opportunity to deduct some pre-tax expenses, ensuring you can afford things like travel and uniform costs more accurately than before. Both forms of business are all about maximizing what you get out of what you are putting in.

The main challenge is deciding which of the two you would prefer.

LLC

With an LLC, you get a model which involves the owner of a single-member LLC avoids needing to file tax returns for the LLC. This means they are both easy to set up and manage in the long-term. The costing of getting one started is extremely cheap, too, making it easy to set up your business as an LLC without an incredible financial burden.

However, you will need to pay self-employment tax in an LLC which can be quite a lot. This means quarterly IRS payments are needed, equaling a nice nest-egg being eaten away at.

S-Corporporations

In an S-Corporation you get a quality chance of getting some really nice tax benefits. All excess profits are distributed out and they do not come with taxation attached. By ensuring all members/employees are paid a salary, too, this helps to mean that S-Corps get to avoid things like federal taxation while still meaning it’s quite easy to manage from an admin level.

Anything left over at the end is paid out to the owners as a dividend, which is very lightly taxed. With all this in mind, though, S-Corps are very strict in terms of guidance and management compared to LLCs. You need to be a full resident in the US to be one, too, and you have a limit of 100 people owning shares in the company. Add in the extra cost and the larger state taxes, and S-Corps are something you should look to discuss in detail with others.

Do yourself a favor, and hire a professional expert to talk to about your financial situation. You might find that, with the help of a CPA, you can get a better idea of what works best for your kind of business.