An S-corp's credits, deductions, profits, and losses are all taxed at the shareholder level.
The owners are considered an employee of the company and need to pay themselves a reasonable salary. In the case of an S corporation, the business owners are known as shareholders. To make your company an S corporation, it must be registered as a C corporation or LLC. S corp also prevents the company from incurring corporate-level double taxation. What is an S Corporation?Īn S corporation, otherwise known as an S-corp or S subchapter, is considered a tax election that enables the IRS to acknowledge a business needs to be taxed as a partnership. The company’s remaining profits are distributed as dividends. It is then reported by the LLC as a business expense and deducts payroll taxes. On the other hand, an LLC could potentially be taxed as an S corporation or even a C corp, which means the member needs to be paid a reasonable salary. The members of the LLC need to pay self-employment tax on their income. When the LLC is taxed as a sole proprietorship, it gains a tax advantage of being known as a pass-through entity, meaning its profits “pass through” the business to the LLC members, so they can report the profits on their personal tax returns instead of filing a corporate tax return. If the company ends up in legal trouble or sued by debt collectors, the creditor or plaintiff can only go after the business assets, not the personal assets of the LLC owner. What is a Limited Liability Company (LLC)?Ī Limited Liability Company (LLC) is a type of business structure that protects the personal assets of the owner. With that said, here’s what you need to know about these business types and the difference between them before making a final decision on which one suits your business needs. In some cases, a business may even be both of these business types. LLCs and S corporations are known for being some of the more popular options. Each business type has personal asset protection, operational implications, management structure, and tax laws.
#LEGAL ZOOM LLC SCORP HOW TO#
If you are planning to start your own business, or are in the process of coming up with a plan, one of the first decisions you need to make is how to structure the business.
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