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gooner · 07-23-2006, 02:49 AM

I plan to start my own business. My question is should I form a C-corporation or a LLC?

I know that LLCs are typically cheaper and easier, however, are there any tax advantages I will be losing? Also will creditors see the LLC as its own entity or will its credit be tied to myself.

Thanks in advance guys

BOB+ · 07-23-2006, 02:50 AM

There's not much of a difference between the corp status vs LLC, though the paperwork may be a little easier for an LLC. You're not going to get any better credit using either since it will be based on your personal credit until you develop some with the company.

sox · 07-23-2006, 02:52 AM

I would go with the LLC. I have in the past and it actually gives you better tax advantages than the Corp. Corporations are taxed twice, once at the corp level and again at the individual level when you take money out. LLCs don't work that way you only get taxed once. If you need any help let me know.

Tim7 · 07-23-2006, 02:52 AM

Would an S-corp not be an option either? They also save you from getting taxed twice.

forex101 · 07-23-2006, 02:53 AM

In a one member LLC, IRS gives option to file as an individual, partnership or corp. Please confirm at IRS website.

Vitovt · 07-23-2006, 03:06 AM

I would suggest organizing as an LLC for the above mentioned tax benefits. LLCs are good because they protect the investors, in that if the business fails, creditors will only be able to get what you put in the business, ie. not your personal assets.

jeff · 07-23-2006, 03:08 AM

I think it's great you're starting a business.

An LLC (Limited Liablity Company) was made for businesses and real estate investments. It's provides you and your business with great protection.

When you're a Member of an LLC the liablity of the company stays with the company not the Members (Owners).

Were in a Corporation the Offices who act like owners are the employees and hold all the liablity of the Corporation.

So unless you're planing to sell stock in your Corporation and want to go public an LLC is a great protection tool for any business.

john_cpa · 07-23-2006, 03:10 AM

The best structure you should select must be based on the amount of income you plan to make and what the business does and how it operates.

Will you need to raise future capital through investors? This is one consideration. Will your company make in excess of $150 K per year? If yes, an LLC may not be the best course. If under that amount, it probably will be the best choice, since it has some of the benefits of a corporation (for liability protection), and the benefits of a partnership (for beneficial tax purposes).

Whichever way you go, I suggest your purchasing a book on forming corporations or LLCs by Anthony Mancuso. His books are the best and can pretty much keep you on track through the setup process. The books are for education, enabling you make informed business decisions.

In most states, you can setup your corporation or LLC online in 20-30 minutes. It's a simple process (the filing part). The install process (Bylaws, resolutions, minutes, etc, are what is called the Install process-covered by the book).

Regards,

John

DrTrade · 07-23-2006, 03:13 AM

Another option is to form a LLC, and then elect to have it taxed as a full fledged corporation. Then you can elect to have it treated as an S-corp. My accountant told me about this option and it seems to work pretty well.

The difference between the C-corp and the S-corp is that the S-corp election allows your finances to be passed through to your personal income taxes. Your S-corp will still file a return, but it won't pay taxes. The taxes the company will pay are passed through to your own personal tax assesment.

There is a big advantage of having your LLC taxed as a S-corp. In a straight LLC, all of the profit the company makes is taxed a the "self employment" rate, regardless of whether you take the money out of the company or not. So not only are you paying taxes as an employee, you are also paying the companies half of those same taxes.

What the S-corp election does is to allow you to take distributions on top of your salary. These distributions are only taxed at the employees rate, half the self employment tax rate, if you will. So you are still paying roughly 15% in taxes on your salary, but you're paying half of that on your distribution.

Now, the catch is that you can't take a $100 salary and a $10,000 distribution. The IRS will know you're trying to get around paying taxes and slap you with paying the additional tax on the $10,000 AND penalties.

What is the breakdown of how much you can take as a salary vs. a distribution? The IRS won't say. You have to be able to justify the ratio to the IRS.

Ask your accountant about this option, because there is less paperwork in forming an LLC, and you can have the advantages of an S-corp all in one!

Be sure to talk to an accountant and an attorney to discuss your specific situation.

07-23-2006, 02:49 AM	#1
gooner Piggy Bank Join Date: Jul 2006 Posts: 75 Rep Power: 6	LLC vs C-Corporation I plan to start my own business. My question is should I form a C-corporation or a LLC? I know that LLCs are typically cheaper and easier, however, are there any tax advantages I will be losing? Also will creditors see the LLC as its own entity or will its credit be tied to myself. Thanks in advance guys

07-23-2006, 02:50 AM	#2
BOB+ Piggy Bank Join Date: Jul 2006 Posts: 96 Rep Power: 6	There's not much of a difference between the corp status vs LLC, though the paperwork may be a little easier for an LLC. You're not going to get any better credit using either since it will be based on your personal credit until you develop some with the company.

07-23-2006, 02:52 AM	#3
sox Piggy Bank Join Date: Jul 2006 Posts: 59 Rep Power: 6	I would go with the LLC. I have in the past and it actually gives you better tax advantages than the Corp. Corporations are taxed twice, once at the corp level and again at the individual level when you take money out. LLCs don't work that way you only get taxed once. If you need any help let me know.

07-23-2006, 02:52 AM	#4
Tim7 Greenhorn Join Date: Jul 2006 Posts: 48 Rep Power: 6	Would an S-corp not be an option either? They also save you from getting taxed twice.

07-23-2006, 02:53 AM	#5
forex101 Greenhorn Join Date: Jul 2006 Posts: 36 Rep Power: 6	In a one member LLC, IRS gives option to file as an individual, partnership or corp. Please confirm at IRS website.

07-23-2006, 03:06 AM	#6
Vitovt Piggy Bank Join Date: Jul 2006 Posts: 56 Rep Power: 6	I would suggest organizing as an LLC for the above mentioned tax benefits. LLCs are good because they protect the investors, in that if the business fails, creditors will only be able to get what you put in the business, ie. not your personal assets.

07-23-2006, 03:08 AM	#7
jeff Greenhorn Join Date: Jul 2006 Posts: 28 Rep Power: 6	I think it's great you're starting a business. An LLC (Limited Liablity Company) was made for businesses and real estate investments. It's provides you and your business with great protection. When you're a Member of an LLC the liablity of the company stays with the company not the Members (Owners). Were in a Corporation the Offices who act like owners are the employees and hold all the liablity of the Corporation. So unless you're planing to sell stock in your Corporation and want to go public an LLC is a great protection tool for any business.

07-23-2006, 03:10 AM	#8
john_cpa Greenhorn Join Date: Jul 2006 Posts: 10 Rep Power: 0	The best structure you should select must be based on the amount of income you plan to make and what the business does and how it operates. Will you need to raise future capital through investors? This is one consideration. Will your company make in excess of $150 K per year? If yes, an LLC may not be the best course. If under that amount, it probably will be the best choice, since it has some of the benefits of a corporation (for liability protection), and the benefits of a partnership (for beneficial tax purposes). Whichever way you go, I suggest your purchasing a book on forming corporations or LLCs by Anthony Mancuso. His books are the best and can pretty much keep you on track through the setup process. The books are for education, enabling you make informed business decisions. In most states, you can setup your corporation or LLC online in 20-30 minutes. It's a simple process (the filing part). The install process (Bylaws, resolutions, minutes, etc, are what is called the Install process-covered by the book). Regards, John

07-23-2006, 03:13 AM	#9
DrTrade Greenhorn Join Date: Jul 2006 Posts: 35 Rep Power: 6	Another option is to form a LLC, and then elect to have it taxed as a full fledged corporation. Then you can elect to have it treated as an S-corp. My accountant told me about this option and it seems to work pretty well. The difference between the C-corp and the S-corp is that the S-corp election allows your finances to be passed through to your personal income taxes. Your S-corp will still file a return, but it won't pay taxes. The taxes the company will pay are passed through to your own personal tax assesment. There is a big advantage of having your LLC taxed as a S-corp. In a straight LLC, all of the profit the company makes is taxed a the "self employment" rate, regardless of whether you take the money out of the company or not. So not only are you paying taxes as an employee, you are also paying the companies half of those same taxes. What the S-corp election does is to allow you to take distributions on top of your salary. These distributions are only taxed at the employees rate, half the self employment tax rate, if you will. So you are still paying roughly 15% in taxes on your salary, but you're paying half of that on your distribution. Now, the catch is that you can't take a $100 salary and a $10,000 distribution. The IRS will know you're trying to get around paying taxes and slap you with paying the additional tax on the $10,000 AND penalties. What is the breakdown of how much you can take as a salary vs. a distribution? The IRS won't say. You have to be able to justify the ratio to the IRS. Ask your accountant about this option, because there is less paperwork in forming an LLC, and you can have the advantages of an S-corp all in one! Be sure to talk to an accountant and an attorney to discuss your specific situation.

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