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    5 Replies Latest reply on Jan 18, 2014 12:44 PM by Manoj Gupta

    Right form of entity - S-Corp. vs. LLC

    Manoj Gupta Adventurer

      In most cases for small businesses, S-Corp. is better than LLC. In case of LLC, 100% of net income is subject to self employment taxes (15.30%) while in case of S-Corp., the income subject to self employment tax is typically 30-50% of net income. I have illustrated this and the tax saving impact, on my website with the help of an example. Please see "FREE DOWNLOADS" page on my web site www.Gupta-CPA.com and download the excel file, review and give me your feedback, if any.

        • Re: Right form of entity - S-Corp. vs. LLC
          mmaur604 Wayfarer

          Manoj, that is true of the tax election but not necessarily so for the choice of legal entity. Corps, even S corps, require adherence to corp formalities, something very few growing businesses keep up with.   Thanks to 'check-the-box' regs, a business can have its cake and eat it to. 

            • Re: Right form of entity - S-Corp. vs. LLC
              Linda Kelly Wayfarer

              You are right most people do not have the slightest ideal what to do when they incorporate. That is why I have been in business for a while now. I try and hold mini classes sometime about 10-20 people.I keep it limited so that I can give the operators of the business quality service but still my business still ends up doing all of their corporate compliance paperwork because they rather do the day to day operation then to keep the recordbook up to date.


            • Re: Right form of entity - S-Corp. vs. LLC
              Guide

              Although you are correct with the income tax aspect, there are many other reasons why a LLC is better than a S-Corp. It all depends on what kind of a company you have. The liquidation of an LLC and the legal ramifications are much easier to deal with.  An LLC does not technically have an owner only managing members. With-out going into specific details, my advice to anyone is to not only ask a reputable accountant but a business attorney as to which type of company they should open when considering the start of any business. This decision should not be made solely on income tax returns.

               

              Melinda

              • Re: Right form of entity - S-Corp. vs. LLC
                Manoj Gupta Adventurer

                Yes..completely agreed. Legal aspects as well as income tax issues- both are equally important during decision making process as to which form of business entity is most suitable. I come across with clients asking me over phone whether they should form an LLC or an S Corp and obviously there is no one answer to all situations. I like to have at least 30 minutes discussion with clients to decide the best solution for them.