LLC vs. General Corp for one-owner small business (more)?
I have gotten conflicting ideas on which is better. One of the advisors was a tax-attorney friend of my MIL's who gave me some free advice, so I don't want to bombard her with questions. The other came from an incorporation service that I've contacted about arranging the incorporation for me.
The TA told me that an LLC would require, for the life of the LLC, a taxation rate equal to that of my personal tax rate, while a GC would have a tax rate of 15%. However, the GC would also require meetings of the "shareholders" (me) - bringing about the obvious questions of: how do I hold a meeting with myself?
I'm confused, really. I like the "tax advantage" of a straight 15%, given that if this biz takes off I may well end up in a tax bracket higher than that. However, the corporation agent mentioned something about ending up being taxed twice if I choose the GC option - he was very brusque with me and kind of made me feel like I was bothering him, so I thought I'd check w/you guys.
- Anonymous1 decade agoFavorite Answer
The LLC vs Corp question is asked by many and needs to be determined on a case by case basis after examining your situation and goals. You want a collaborative effort with your attorney and accountant. Make sure you get real counseling and do not use a service.
A corporation will need to file taxes every year and the general rule is that the corporation is taxed and then whatever comes to you is also taxed. If you qualify then you can elect to have the corporation treated as a sub-chapter S corp and then the corporation still files a return but is not taxed. The income flows through to you and you pay the taxes on your 1040.
You will need to hold the meetings but holding meetings with yourself is very easy. Your attorney should meet annually and prepare the meeting minutes and update corporate records.
With an LLC you have many options. A sinlge member LLC is generally considered a disregarded entity for tax purposes and you simply include the income on your 1040. You can though use the Check the Box Regulations to have your LLC treated as corporation for tax purposes. If you do this then the same rules apply on taxes as above. If the LLC is taxed as a corporation then you can once again make the S election to have income pass through to you.
While the LLC has less strict rules you should still hold the annual meetings and do regular updates to company records.
This is an issue to be carefully counseled by a competent business planning attorney and you should not scrimp on these legal services. There are too many important issues and a few dollars saved now can cost you tens of thousands to fix later. Get it done right the first time.
- 1 decade ago
The LLC would be taxed at your tax rate based on the Net Profit of your business. This rate could be as little as 10% to as much as 33%. Be aware that by default of a Single owner LLC, you for tax purpose only, will file and be taxed as a sole-proprietorship. If you go the Corporation way there are two was to go. But before I explain the two ways understand that by forming a Corporation you are creating a Entity, a person for lack of a better example, that means you work for the Corporation. You also will be the sole shareholder, but you have 2 hats to wear. One as a employee and one as a shareholder. Employees receive wages, which means you must pay yourself a wage hold out taxes and provide a W-2 at year end to yourself. The shareholder is entitled to receive dividends from the profits of the company. These profits are taxed at 15% on the first $50,000.00 and then paid out to the shareholder who has to report this money as income on their return and pay taxes on this money again. If the Corporation pays out no dividend then no tax is paid by the shareholder. The money belongs to the Corporation and not the shareholder/Owner. If you choose to be a Corporation then you could make and election to be an "S" Corporation, which means the profits or losses would be distributed out to the shareholders and the shareholders not the Corporation pays the taxes on the profits. This makes the profits belong to the shareholder and you pay tax on this money one time. But you pay taxes at what ever your tax rate is at the end of year.Source(s): I am an Enrolled Agent which is a licensed individual who prepares taxes and can represent client in front of the Internal Revenue Service.
- 1 decade ago
Your best course of action would be to contact a corporate attorney who can assist you (along with your accountant) in determining the best type of entity for your business venture. Yes, incorporation companies can get you incorporated for $399 (or whatever it is they are charging these days, depending on the state), but you get what you pay for. A decent attorney should be able to give you the appropriate advice and set up a corporation or an LLC and prepare basic organizational documents in most states in the neighborhood of $1,000. Yes, it costs more to begin with, but you'll be more certain of doing things the right way the first time around.
I'm a corporate paralegal and I clean up at least one already established LLC or corporation that was formed through an incorporation company every week (due to the fact that the entity formed was either the wrong type or did not exactly work out as the client intended). Most of these clients actually could have saved money by using an attorney to begin with (because now they are paying for an attorney's services on top of the money they spent on the incorporation company's services). Also, the documents the incorporation company uses are typically the most basis boilerplate documents (i.e.: one size fits all), that don't necessary serve the customers' interests as fully as more tailored documents might.
Don't get me wrong, I'm not trying to drum up business for attorneys...Incorporation services are great for those who already know or are able to ascertain what type of entity they need, and for those that already know how to maintain such entities (or have the time to sit down and research). But, most people don't have this kind of time, or their time is better spent growing their business.
In any case, good luck with your new business!
- Anonymous6 years ago
Subchapter S corporations are similar to LLC’s in most respects, but there are some potential tax advantages if they are properly set up and maintained. The main advantages of an S corporation include: - See more at: http://www.proconstructionguide.com//llc/
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- Anonymous4 years ago
a million) the comparable 2) not sure of the different questions yet i comprehend LLC's are greater versatile. For small agencies, you will desire to possibly evaluate this. verify with a CPA - no longer an felony expert. CPAs comprehend the daily fine details greater effective. An felony expert would provide you strict, unrealistic suggestion.