When is it beneficial to form an S Corp (LA)?

[adirondak]

I am starting a tutoring business, and a tax attorney recommended that I use an S corp over an LLC due to tax advantages. Is there a case where this is true?

It was also recommended that I give as broad a description of the business as possible to maximize potential write-offs and business expansions.

Some general advice would be great - as I have to initiate the formation of either an S corp or LLC this week.

[hockey97]

From what I know as being a accounting major student for 2 years now. I heard that you need to register the business as llc and elect to the IRS as a S-CORP.

S corp is better the a C corp cuz C corp gets double taxation and S corp only gets taxed once.

LLC is legal structure of the business. It gives limited liabiltiy to the company.

You then have to elect this llc to the IRS and make it a S-corp or treated as a S corp in how the business gets taxed. So it will be a s corp and a llc.

yes about your braod description is that you don't for example if your selling computers don't put down that your business is doing noting but selling computers putting down as a computer retailer. This limits you to business only in that area.

You put down in the business descript as all legal activities. This allows you be do any kind of business with that registered business.

S corp is good. You first register your business with the state your doing business in with the llc. Then you elect at the IRS to make your business to be treated as a S corp.

A S-cor isn't a legal structure of business. It's a special taxation title.

a legal structure is a llc, llp,partnership, C -corp .

all those also are taxation titles but S-corp is a special taxation title allowing a company to be a corperation and a sole proprietorship.

here is a site that gives a better expalination: S Corp Eligibility: S Corporation Advantages and Disadvantages | MoreBusiness.com

A s corp means a small corporation. You can issue stock.


what you want to do is register a llc and then with that llc company name you elect it as a S-corp by applying for it at the IRS office.

LLC is a business legal structure and a tax title. If you don't make any tax election to the IRS then the IRS will assume you want to be taxed as a LLC. So at a timely fasion you have to elect your business llc as a s-corp from the IRS. You let the IRS know how you want to be taxed and they will decide weather it's ok to be taxed like that or not.

So you said you trying to decide to be a llc or a S-corp I assume you must be talking in tax wise cuz you still will need to register the business as a llc just elect it or ask the IRS to treat it as a S-Corp for taxing purposes.

Hope this helps and do research about this subject. Don't take my comment or statement as 100% fact or truth. I am just expressing what I know. I started my own business as a LLC and taxed as a S-corp. I incorporated it myself without no lawyer or accountants help. I am so far finishing up my 2 years of college majoring as an accountant and finance.

[GlobalWealth]

I almost never form S-corps for my clients. LLC's are the norm. You can form an LLC and elect S-corp taxation which gives you the tax benefits of the S-corp without the negative aspects. The LLC offers much better asset protection and flexibility. an LLC taxed as S-corp gives you the best of both worlds. Let me know if you need assistance in proper LLC formation.

[adirondak]

Here is what my friend, a tax attorney told me. Can anyone refute this or back it up?

If it is just you owning the business alone, you will have to file as a single member LLC, which means that you file the business on your personal income tax return on a Sch C and pay self employment tax which can be a big burden - its basically FICA but you pay both employer and employee side so it's double than what is withheld from your paycheck.

If you do the s corp then you flow the income/loss through to your personal return...you are supposed to salary out some of the income if you are running at an income but you get the deduction for the payroll tax. Now if you are at a loss, then either of the above will help b/c the loss obviously won't have tax on it and it will offset your other income.

FOR CA, though, you do file corporate single member LLC tax return and S corp tax return and both are subject (except first year) to the annual $800 franchise tax fee..that is minimum tax...depends on income. But even if at loss, you are paying the 800 each year. Which is a pain but in long run if you are making $, it's cheaper than paying the Double self employment tax.

[GlobalWealth]

Here is what my friend, a tax attorney told me. Can anyone refute this or back it up?

If it is just you owning the business alone, you will have to file as a single member LLC, which means that you file the business on your personal income tax return on a Sch C and pay self employment tax which can be a big burden - its basically FICA but you pay both employer and employee side so it's double than what is withheld from your paycheck.

If you do the s corp then you flow the income/loss through to your personal return...you are supposed to salary out some of the income if you are running at an income but you get the deduction for the payroll tax. Now if you are at a loss, then either of the above will help b/c the loss obviously won't have tax on it and it will offset your other income.

FOR CA, though, you do file corporate single member LLC tax return and S corp tax return and both are subject (except first year) to the annual $800 franchise tax fee..that is minimum tax...depends on income. But even if at loss, you are paying the 800 each year. Which is a pain but in long run if you are making $, it's cheaper than paying the Double self employment tax.

You are partially correct. However, you can elect s-corp status for your SMLLC (single member LLC). The tax benefit for S-corp tax status is you only pay the 15.3% self-employment tax on your salary and you pay the income tax on the full profit. So if your company earned $100k and you paid yourself a salary of $50k, you would pay 15.3% of the $50k, not on the total $100k as you would if taxed as a partnership (normal LLC tax status). In effect this would save you about $7500 per year in taxes.

You can still flow the remaining profit or loss to your personally in either scenario. You also do have the $800 state LLC filing fee if your are registered in CA regardless of if you earn a profit or not. I hope this helps.

[Paul22]

If that’s the case, then you will want the corporation to be a C-corporation (regular corporation). For an LLC, there is no actual tax type for an LLC, so the income indeed would pass through to you for your personal income tax return. And for an S-corp as well the income (or losses) would pass through to you for your personal income tax return. However, with a corporation, the income indeed remains with the company, but can’t be passed through to you. You could have the company pay you dividends from it, but while the dividends paid to you would be taxable income to you, the dividends paid by the company to you would not be a taxable expense to the company. Pretty much your only option is as a C-corporation (regular corporation) if you don’t want any income to pass from the company to you, except for a salary.

Injury Claims

[GlobalWealth]

If that’s the case, then you will want the corporation to be a C-corporation (regular corporation). For an LLC, there is no actual tax type for an LLC, so the income indeed would pass through to you for your personal income tax return. And for an S-corp as well the income (or losses) would pass through to you for your personal income tax return. However, with a corporation, the income indeed remains with the company, but can’t be passed through to you. You could have the company pay you dividends from it, but while the dividends paid to you would be taxable income to you, the dividends paid by the company to you would not be a taxable expense to the company. Pretty much your only option is as a C-corporation (regular corporation) if you don’t want any income to pass from the company to you, except for a salary.

The default taxation for an LLC is as a partnership or sole proprietorship, which means all income and losses flow through to you personally.

I would not recommend a C-corp unless you are expecting to earn $1m in net income. This is certainly not common for a startup. With a C-corp, you cannot pass through losses which is an important aspect. Many small businesses operate cash flow positive, but lose money on it income statement. You would want to take advantage of this. With a C-corp this is not possible.

Also, with a C-corp, dividends paid to you from the company are after tax for the company. For example, if the company earns $100k and is at a 30% tax bracket, its after tax earnings are $70k. It would pay you dividends from the $70k, and then you would pay your 15% income tax on the $70k, hence the double taxation. This is usually not a good structure for a small business. It is not always a good structure for a large business. Many large companies these days are shifting to LP's or LLC's.

[adirondak]

Ok - I'm going to look further into doing SMLLC electing S corp tax status. Sounds like the best of both worlds.

[thomas_smith]

While the S corporation's special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners. An LLC may offer several classes of membership interests while an ‘S’ corporation may only have one class of stock.

Any number of individuals or entities may own interests in an LLC. However, ownership interest in an ‘S’ corporation is limited to no more than 100 shareholders. Also, ‘S’ corporations cannot be owned by ‘C’ corporations, other S corporations, many trusts, LLCs, partnerships, or nonresident aliens. Also, LLCs are allowed to have subsidiaries without restriction.

[Carlos™]

So, which corporate status is best for companies starting out? o_O

I'm not talking about LLC - I don't like the weaknesses it possesses. I'm talking about an incorporated company.

[GlobalWealth]

While the S corporation's special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners. An LLC may offer several classes of membership interests while an ‘S’ corporation may only have one class of stock.

Any number of individuals or entities may own interests in an LLC. However, ownership interest in an ‘S’ corporation is limited to no more than 100 shareholders. Also, ‘S’ corporations cannot be owned by ‘C’ corporations, other S corporations, many trusts, LLCs, partnerships, or nonresident aliens. Also, LLCs are allowed to have subsidiaries without restriction.

Actually, S-corps can be owned by LLC's as long as the LLC elects s-corp tax status.

[GlobalWealth]

So, which corporate status is best for companies starting out? o_O

I'm not talking about LLC - I don't like the weaknesses it possesses. I'm talking about an incorporated company.

What weaknesses would that be?