LLC vs S vs C corp

[stephencp]

Steve,
I've noticed that you've chosen Pavlina LLC.
Why an LLC vs a S corp vs a C corp?
I"m trying to decide now.

Stephen
Power-Book Library: Free personal development, success, inspiration and motivational classics

[Jill]

I'd recommend speaking to an accountant about this as every situation is different. I believe the easiest (although it might cost more up front money) is the LLC, however.

[Steve Pavlina]

I recommend reading LLC or Corporation by Mancuso, which covers this topic in great detail. I also talked to three different accountants about this, but it's a complex decision that you really need to understand yourself. Not every accountant or lawyer will give you the same answer. It can be very tedious to figure out, but it's important to do so.

Ultimately I choose to form an LLC because I don't need the more complicated overhead and reporting requirements of a corp. A corporate structure is overkill for our needs.

Many people aren't aware than an LLC has the option of electing flow-through taxation (like a sole-proprietorship), whereby all the LLC's net income flows into your personal income and is taxed as such; or corporate taxation (like a C-corp), where some of the money can be kept in the business and be taxed at the (typically lower) corporate rates.

Our accountant is working on the paperwork to convert our LLC to have C-corp tax status, so we can keep some of the earnings in the business and not be forced to take it all out as personal income. This will save many thousands of dollars in taxes every year vs. if we allowed all the income to flow to us personally.

This means that legally we operate as an LLC, but the IRS will treat us as a C-corp.

Down the road as the business becomes more profitable, I'd like to form a non-profit corp as well and channel some of the profits there for a variety of interesting projects, but for now an LLC is still the best vehicle for us.

[Jill]

To add to what Steve said, I believe an accountant recently told me that as an LLC it's easy to move to a corp, but not the other way around. So keep that in mind as well.

[stephencp]

thanks. I'll read the reference suggested. So far, I've only read Kiyosaki's book on same.

Stephen
Power-Book Library: Free personal development, success, inspiration and motivational classics
TSTN | The Success Training Network

[dhandaulat33]

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[Baltar]

Originally Posted by Jill

I'd recommend speaking to an accountant about this as every situation is different. I believe the easiest (although it might cost more up front money) is the LLC, however.

From what I know, LLC formation costs a lot less than a corporation. However in some states there's a franchise tax or minimum tax on LLC.

Originally Posted by Steve Pavlina

Many people aren't aware than an LLC has the option of electing flow-through taxation (like a sole-proprietorship), whereby all the LLC's net income flows into your personal income and is taxed as such; or corporate taxation (like a C-corp), where some of the money can be kept in the business and be taxed at the (typically lower) corporate rates.

The pass-through taxation is sole proprietorship (1040 schedule C) if you're the only owner. If there are two or more owners in an LLC, the IRS treats it as a partnership. Then you have to file a lot more forms. Form 1065, and a schedule 1065 K-1 for each partner, plus an analogous set of forms for the state.