| If you are deciding between the S corporation and a | | | | small business. The laws allow for businesses to cater |
| limited liability company, you may be interested in the | | | | the operational and governance structure to the |
| recent trend which shows that most business owners | | | | specific business needs. Plus, you can avoid many of |
| are choosing the LLC. | | | | the corporate formalities which are not required with |
| This is because it has the option of being taxed as an | | | | an LLC. |
| S corporation. As a result, you get the tax treatment | | | | The limited liability company automatically qualifies for a |
| you are looking for plus all the benefits of the limited | | | | single layer of taxation which is similar to S corporation. |
| liability company. Benefits include much easier business | | | | However, unlike the S corp rules, there are no |
| vehicle to operate and a more flexible entity that can | | | | requirements that must be met at all times and there is |
| be tailored to meet the needs of most any situation. | | | | no required election. You can avoid double taxation |
| S Corporation Summary | | | | without any risk. |
| An S corporation is really only a tax designation. In | | | | Taxation Analysis |
| order to form one, you incorporate a regular | | | | Now, there are some differences in tax treatment |
| corporation in accordance with state laws. Then you | | | | between LLC and S corporations and the most |
| make what is known as an S election with the Internal | | | | popular difference relates to self employment taxes. |
| Revenue Service. | | | | Depending on the nature of your business, there is a |
| In order to obtain this status, you legal entity must meet | | | | potential method to reduce this tax with S corporation |
| certain restrictions such as having a limited number of | | | | treatment that is not available to a limited liability |
| shareholders and generally the type of shareholders | | | | company. |
| are limited to natural persons (with some limited | | | | Given the complexity of this area of tax, you should |
| exceptions). | | | | consult with your accountant to determine if S status |
| If your corporation meet the requirements and you | | | | may be beneficial to your situation. But here is the |
| make the election in a timely manner, then S | | | | secret that until now most people did not know. |
| corporation status gives your business a single layer of | | | | If you find that you will benefit more from S corp |
| taxation. In other words, you avoid the double taxation | | | | taxation, you do not need to form a corporation |
| of a C corporation. | | | | because the Internal Revenue Service allows for an |
| It is really important that as your business grows and | | | | LLC to elect to be taxed as an S corporation. The |
| changes, you are always checking to confirm that | | | | election process is exactly the same as you would go |
| your business remain compliant with the S corporation | | | | through if you formed a corporation for your business. |
| tax rules. Failure to meet them, even if by accident, | | | | It has taken awhile for accountants to get updated on |
| can result in significant tax consequences and | | | | this ability and to be comfortable with the limited liability |
| penalties. | | | | company because for years they were used to using |
| LLC Summary | | | | the corporation to achieve pass through tax status. |
| This entity is relatively newer than the corporation but it | | | | Recently, more accountants are understanding the |
| provides the same level of personal liability protection | | | | power of the LLC and advising the use of this entity |
| as the corporation. | | | | even in situations where an S election is the |
| However, it was designed to be a practical vehicle for | | | | recommended tax treatment. |