S-Type Corp or LLC?

[jdk]

The size of my portfolio is growing and it is about time to either form an s-type corp or LLC. Does anyone know the pros and cons of each and which you would recommend?

 

[austinandrew]

The size of my portfolio is growing and it is about time to either form an s-type corp or LLC. Does anyone know the pros and cons of each and which you would recommend?

It depends on the state you are in. An LLC is generally easier to set up (don't have to deal with stock), but that's just my experience in Texas. (I have an LLC and an S-Corp)

Here's a good article that explains differences

 

[jdk]

I am in Florida. I have been told it was like $450 from my tax guy to set everything up. Otherwise, I can do it online for a little bit cheaper. The stock wouldn't be an issue as I would not sell it out and keep it locked up. As for employees it would be myself for a while and maybe pick up one or two partners in the future. I can either pay them through checks which I would classify as an expense instead of a payroll payment so I wouldn't have to deal with the payroll taxes.

Other main thing I will apply for is an EIN #. Not sure if you can get these with both types LLC and S-type

 

[gariben]

for both LLC and S Corp, you can apply for an EIN# thur irs.gov

 

[jdk]

I have been reading and it seems with an LLC you don't have payroll, rather you "reward" yourself to the money. Is this correct?

The main reason I am looking to form an s-corp or LLC is because my upcomming project relies on maintaing data. I will be performing hourly backups, but I want to ensure my personal assets in the event data is lost and a client tries to come after me for some reason. I have read an s-type corp is better in these situations. Would an LLC do justice too?

 

[austinandrew]

I have been reading and it seems with an LLC you don't have payroll, rather you "reward" yourself to the money. Is this correct?

The main reason I am looking to form an s-corp or LLC is because my upcomming project relies on maintaing data. I will be performing hourly backups, but I want to ensure my personal assets in the event data is lost and a client tries to come after me for some reason. I have read an s-type corp is better in these situations. Would an LLC do justice too?

An LLC can pay you salary or distributions. But keep in mind you still have to pay self employment tax on distributions. An LLC should provide you the same protection as an S-Corp. But there have been many cases where juries have decided neither provided protection. Be sure to keep separate financial accounts for the business and your personal expenses. And oh yeah, I'm not a laywer

 

[mppedersen]

But there have been many cases where juries have decided neither provided protection.

My Tax guy is not big on 1 person corporations or llc's for this same reason. If its just you the jury/court can very easily "pierce the corporate veil" if all your paperwork and tax and records are not 100 percent perfect.

If your are going to do it have an attorney or tax rep do the s-corp or llc and have them maintain it, it will cost you more but they will be on top of things and if they mess up and you do lose a lawsuit for improper paperwork and or filings you can go after their professional liability insurance. Also keep in mind you may also need liability insurance or the court may just throw out the corporation and allow the plaintiff to come after you.

I worked in insurance for 10 years, yes this does happen.

 

[austinandrew]

My Tax guy is not big on 1 person corporations or llc's for this same reason. If its just you the jury/court can very easily "pierce the corporate veil" if all your paperwork and tax and records are not 100 percent perfect.

If your are going to do it have an attorney or tax rep do the s-corp or llc and have them maintain it, it will cost you more but they will be on top of things and if they mess up and you do lose a lawsuit for improper paperwork and or filings you can go after their professional liability insurance. Also keep in mind you may also need liability insurance or the court may just throw out the corporation and allow the plaintiff to come after you.

I worked in insurance for 10 years, yes this does happen.

Good points. If you're worried about getting sued over data backup, you probably want to get professional liability insurance anyway. Or outsource the data backup responsibilities to another company that offers guaranteed service level agreements.

 

[jdk]

Thanks for the suggestions so far. As this is starting out small I will likely not need the insurance off the bat. If the site takes off, which I predict it will, then later on down the line I will need to look at larger options.

 

[Momentum]

The main difference between an LLC and an S-Corp is the taxation of profit distributions to business owners/shareholders.

With an LLC, you must pay self-employment taxes on profit distributions (unless you meet certain loopholes). With an S-Corp, self-employment taxes are not imposed on the company profit distributions.

Let's say your company generates $500K revenue and has $300K in expenses (including your salary), resulting in a $200K profit. With an S-Corp, you (the company owner) receive this money as a distribution and have to pay income tax on it.

Well with an LLC, you receive the money as a distribution from the company and you have the pleasure to pay income tax and self-employment taxes. That is an extra 15.3% tax (the current self-employment tax rate) that you have to pay ($30,600).

There are some other very minor differences between the corporate structures detailed here:
http://bizfilings.com/learning/corptypes.asp#LLCvsS

* I am not a lawyer or accountant, so please make sure to confirm everything before making a decision.

 

[gariben]

the 15.3% percent tax is your Social Security/Medicare tax.. so theotherotically.. by paying this tax, you are saving for your future if the SS system doesn't break.

The federal tax, money you give away to Uncle Sam (money that Uncle Sam is paying for the Iraq war, etc.) could be as high as 35%

Your Income Tax = Social Security/Medicare (15.3% upto to $90,000) + Federal Tax + State Tax + City Tax

 

[GiantDomains]

With s-corp you can claim losses first year, LLC, not. Talk to an accountant.

 

[jdk]

I think I am going to have to.