The Difference Between LLC And S Corporation Tax

LLC operation is simple, and S-Corp is more troublesome. It needs regular shareholders meeting and meeting minutes. The profits and losses of LLC and S-Corp are pass-through to shareholders, and together with individual income tax of each shareholder. But LLC's income is all payroll tax (also called employment tax). This includes SSN + employment, which has a 15.3% tax rate.

And if profit (Ying Li) is a lot, S-Corp has an advantage over LLC in terms of tax revenue. That is, only S-Corp's wages are paid to payroll tax.

However, other parts of wages are counted as dividends (distribution). Dividends are not paid for payroll tax.

In this case, many people will say, "then I will take the money from

If you take it out, try to count it as dividends, so you don't have to pay payroll tax., but this idea is very naive, because IRS aims at this regulation.

That is to say, S-Corp must pay reasonable wages to employees.

So, you should take care of yourself from S-Corp, and be careful not to take the money that is supposed to be a salary as dividends, otherwise it will cause IRS trouble.

According to my analysis, if your company makes a lot of profits, S-Corp may be more appropriate.

Because your salary is basically fixed according to the industry standard, then the rest of the substantial profit portion is not paid for payroll tax.

This is much better than LLC's whole process of payroll tax.

When the tax is paid as an independent legal person entity, it needs to fill in Form 1120. According to the enterprise's tax return, the initial tax rate is low.

For example, a net profit of less than more than 30 thousand dollars, tax return is also tax rate. of 10~15%, in addition, S-Corp and LLC earn pass-through in the name of individuals.

And the money earned by C-Corp can be left in the company, so if you want to earn more money in the company and make the company bigger, C-Corp's form is better.

This form is also an enterprise form that VC venture capital likes.

The drawback of C-Corp is that there is a double taxation problem between companies and shareholders. Because they earn a tax according to the company, the money is paid in the company's personal income tax.

Therefore, in terms of Taxation, C-Corp needs a good planning and a reasonable tax avoidance.

Specifically, we can see the list of Tax Rates for Corporations (http://www.bizfilings.com/toolkit/sbg/tax-info/fed-taxes/s-c- corporations-create-different-tax-consequences.aspx) in this article.

S-Corp's revenue or loss is reported together with personal income tax, so S-Corp English is called pass-through tax entity., because the enterprise itself does not pay tax, but it needs to fill in the federal Form 1120S tax form.

In terms of company ownership, C-Corp has no restrictions on the number of company owners, but S-Corp is restricted to no more than 100 shareholders, and the other shareholders of S-Corp must be US citizens or permanent residents.

If an enterprise has operation in many states, then C Corp may be more appropriate, because in many states taxation, S Corp is very complicated.