Many small businesses opt for a quick formation of an LLC due to limited fees and filings, but what is an LLC exactly?
An LLC is a legal business structure known as a Limited Liability Company. This allows business owners, also known as members, to separate personal liability from their business. It can have one owner to multiple owners.
An LLC is a simple designation because it allows members to be taxed (15.3%) as a sole proprietorship and file on their individual tax return. It requires the owner to take a draw instead of utilizing payroll.
With an LLC, the member can elect to be taxed as an S-Corp, but what is an S-Corp?
An S-Corp is a tax classification known as Subchapter, which is a subchapter corporation that utilizes pass through income taxation. This ensures business owners are not be double taxed. This tax classification also comes with filings fees and a recommendation to consult with a professional prior to completing the filings yourself.
With this election, the owner can be deemed an employee and receive payroll, while also receiving profit distributions.
This is a basic outline with the main characteristics of an LLC vs. S-Corp and is not intended for legal advice or guidance. All readers are strongly encouraged to do their own due diligence or contact a professional for direct advice relating to their specific business situation or goals.