S-Corp vs. LLC advantages disadvantages

[Rod73]

I am weighing my business structure options here. I've narrowed it down to S - Corporation and Limited Liability Company. As someone who is getting into part-time (side) , that would be happy (right now) doing a few cars a month, I am interested to hear from those that are experienced the real life advantages and disadvantages of each option?



Thank you

 

[GSKR]

Ask you're acct

 

[WindyCity]

Defenately talk to your accountant first but if you are only doing a few cars a month and you are self employed with no employees you might be just as well to file a sole proprietorship. The cost are much less and you wont have much liability if its only you detailing a few cars....you can purchase a small insurance policy to protect you if you want just incase someone gets hurt by you cleaning their car. I think it cost me $65 total to be a legit business....mostly from the the requiment to list it in the local paper

However as stated you need to talk to your cpa and your attorney to protect yourself and get the most up to date advice since the laws are different in every state

 

[wdmaccord]

Best of both worlds - create a LLC with an S-Corp election. Ultimately, you should consult with an accountant to see which situation is best for you though.

I posted this article to the forum a couple weeks ago when someone else was looking into this. Again, no substitute for talking with an accountant, but it draws good comparisons between the two options and might help you formulate some questions when you meet with an accountant. LLC Electing S Corp Status--The Best of Both Worlds | BizFilings Toolkit

 

[skwidd]

If you are only doing a few cars a month...

Form an LLC and operate under the LLC. Everything will get reported on your schedule C.

The advantage to an S Corp is if you are making over ~$115,000 a year on the detailiing business. What you do is you pay yourself a salary until you max out on FICA/FUTA, then you make dividends of the excess (over the $115) to avoid the Medicare tax. That is the advantage of an S Corp.

For just a few cars a month, you aren't going to be pulling in the profits that justify getting an EIN, then making the S Corp election, then filing the Form 1120S each year. Just stick with an LLC taxable as a disregarded entity for now.

 

[Rod73]

Thank you everyone for your input. Considering my goals are to make this a low volume side venture I do understand it would be easier and more profitable to be a Sole Proprietorship, but I wanted the extra piece of my protection of protecting myself from personal liability in adition to getting insurance as well.

Considering I am still at that just doing close friends and daily drivers of coworkers stage right now and not a business yet I am still very open to how I am going to go about making this an official part business.

 

[wdmaccord]

If you are only doing a few cars a month...

Form an LLC and operate under the LLC. Everything will get reported on your schedule C.

The advantage to an S Corp is if you are making over ~$115,000 a year on the detailiing business. What you do is you pay yourself a salary until you max out on FICA/FUTA, then you make dividends of the excess (over the $115) to avoid the Medicare tax. That is the advantage of an S Corp.

For just a few cars a month, you aren't going to be pulling in the profits that justify getting an EIN, then making the S Corp election, then filing the Form 1120S each year. Just stick with an LLC taxable as a disregarded entity for now.

Not really. I only needed to make about $30k in revenue a year for the S-Corp to make sense. No need to max out salary to FICA threshold. Just have to pay a "reasonable" salary and the rest is passed through on K-1 as "distribution" not dividend. Very important as only C-corp passes through dividends and are taxed at the dividend tax rate (after being taxed at the corporate tax rate as well). Distributions are taxed at the individuals income tax rate. This is exactly why people need to consult with an accountant or tax attorney to help decide what structure is best for them.

 

[Rod73]

Not really. I only needed to make about $30k in revenue a year for the S-Corp to make sense. No need to max out salary to FICA threshold. Just have to pay a "reasonable" salary and the rest is passed through on K-1 as "distribution" not dividend. Very important as only C-corp passes through dividends and are taxed at the dividend tax rate (after being taxed at the corporate tax rate as well). Distributions are taxed at the individuals income tax rate. This is exactly why people need to consult with an accountant or tax attorney to help decide what structure is best for them.

This is good to know