WIll my LLC be taxed as an S-Corp or S-Corp? 5 Answers as of May 24, 2011I plan to launch a freight brokerage business in the coming weeks and need some insight as to how I should form company. Should I opt for LLC with election to be taxed as S-Corp? Or should I opt for S-Corp from the start? I don't want to make a mistake I will regret years down the line by choosing wrong entity. Your insight is greatly appreciated!
David Hoines Law | David Hoines
An llc is taxed as a partnership, not a sub-s; difference primarily re retirement plans the entity might adopt in future, depending on profits assuming you are only shareholder, sub s probably better as you can terminate the election later if need be without otherwise changing company.
Answer Applies to: Florida
Steven J. Fromm | Steven J. Fromm & Associates, P.C.
These days the choice of an LLC is the most fashionable. However, one size does not fit all. The problem with LLCs from a tax perspective is that all income shown on the K-1 (Form 1065) are treated as earned income subject to social security. For an S corporation, only the payroll paid to key shareholders is subject to social security withholding. So the K-1 income from the 1120S is not subject to social security tax. This social security tax saving potential is why some choose the S corporation. Note, however that the IRS is aware of this strategy so you must be reasonable in the allocations between salary and k-1 profit. In addition, states tax these entities differently as do local municipalities, so all these factors need to be balanced. Your best strategy is to get with a tax attorney to have a face to face meeting exploring your particular factual and business situation. You may need to even do some tax projections to be sure.
Answer Applies to: Pennsylvania
Givner & Kaye | Bruce Givner
First, to answer your question your advisor needs to know all of your facts, personal and business, and all of your goals and objectives. So you should first have a highly competent CPA whom you trust enough to discuss this with. Second, there are reasons you could make either decision: "S" corporation or LLC. For example, if you are in California, an LLC has a gross receipts tax that could make it more expensive than an "S" corporation. On the other hand, if you are going to have a minority owner, that person would have more rights in an "S" corporation than in an LLC. Also, it is easier to divide P&L in an LLC than in an "S" corporation. So, you need advice, which is something you can't get in a simple e-mail response. Does that make sense?
Answer Applies to: California