Creating a new business is an exciting time. However, it can be quite daunting and confusing. Besides finding the perfect name, you must decide how you will register your business. This is the part of the process that can cause massive headaches and procrastination. Filing your business is very intimidating and time consuming. I do understand your worry of not filing your business correctly. You may have several questions, so here is a little breakdown in knowing the difference between S-Corps vs. LLC.
An LLC is not a separate tax entity like a corporation; it is what the IRS calls a pass through entity, like a partnership or sole proprietorship. All of the profits and losses of the LLC pass through the business to the LLC owners , who report this information on their personal tax returns. The LLC itself does not pay federal income taxes, but some states do charge the LLC itself a tax. Use the links on this page and take advantage of the LLCs and S Corporations that will be most beneficial to your business.
The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.
The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. LLC’s must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.
S Corporation: To qualify, generally, the corporation must have a maximum of 75 shareholders who are individuals. Once a corporation makes the Sub-chapter S election to be an S-Corporation, profits and losses are passed through the corporation and are reported on the individual tax returns of the respective shareholders of the S-Corporation.
