Learn the Difference Between LLCs and S Corporations
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| Choose your entertainment media business entity carefully. |
Note: Before taking the plunge with your business, make sure you consult with a certified accountant and/or legal counsel for legal and financial details behind starting a company.
Most new entertainment media entrepreneurs opt to make their businesses LLCs or S Corporations because of the tax advantages associated with both options. However, you can only choose one. Which will it be?
Inc.’s article lists the similarities and differences of LLCs and S Corps beautifully, including the pros and cons of both – and I’m sharing them with you here.
Let’s Be Honest…
Okay, be real with me – this kind of administrative stuff bores the fire out of you, right? You weren’t paying much attention the last time you heard or read about this, right?
Oh well. Now that you’re serious about realizing your entertainment media business and realize that you’ll need it to be an actual entity to reduce your personal liability, you’ll need to pay attention now. Keep chewing.
What In the World Is an LLC?
An LLC, or limited liability company, according to Inc., is “a hybrid of the partnership and the corporation.” It protects your personal finances from consequences should the company fall into debt.
It’s easy to set up:
1) Complete the Article of Organization (the fee ranges from $50 to $100 depending on the state you’re filing in), and
2) Complete the Operating Agreement (your organization’s members will put their heads together to officially list how the company will run).
Okay, So What’s an S Corporation?
An S Corporation is an entity that has all the advantages of a standard C Corporation, without the burden of double taxation (both the C Corporation and its owner get taxed for their income).
The name comes from Subchapter S of the Internal Revenue Code, allowing a company the option of choosing how it’s taxed: it allows a company to pass all of its profits to its shareholders directly.
As such, the shareholders will be taxed on that revenue stream, leaving the corporation untaxed altogether.
S Corp setup:
1) complete the Articles of Incorporation, then
2) complete Form 2553 and file with the IRS by the 15th day of the third month of the corporation’s tax year
What’s The Difference?
LLCs
· like S Corps, avoid double federal taxation (local and state taxes still apply)
· still relatively new in most states (since the ‘90s), so laws are still fluid
· laws, filing requirements, and fees vary state to state (research if you’re doing business across state lines)
· limited company existence (30-year default if none specified)
· members involved in company’s management keep limited liability status
· unlimited number of members allowed
· members can be foreign nationals or other companies
· California, D.C., and Massachusetts require two-or more-member minimum
· self-employment taxes on all income
S Corps
· maximum 75 investors (must be U.S. residents or citizens)
· company must be a corporation before filing for S Corp status
· must pay employees according to industry standards instead of low salary with high profits (the IRS will hunt you)
· must pay state and local taxes that apply
· stockholders can file company losses on personal income tax returns
· employees taxed on regular income, but not on profits (loophole)
To You
If you’re still in the process of choosing an entity for your business or if you know someone who is, bookmark this article and check these other sources for more in-depth information:
Great information. Keep in mind that LLCs can now elect S-Corporation status. This allows the company the flexibility of the LLC structure along with the tax flexibly of an S-Corporation.
ReplyDeleteThanks for reading the article, Steven, and huge thanks for the update. That option makes entrepreneurs' lives even easier. Your website, DoMyLLC.com, is impressive, by the way. I'll be sure to include it in my list of links in the article.
DeleteHow has the first year of business been for the site, by the way?
It is really important that you are being aware of what is going on in your company. Ignorance will not help you in the end. new mexico llc
ReplyDelete