BEGIN:VCALENDAR VERSION:2.0 PRODID:-//jEvents 2.0 for Joomla//EN CALSCALE:GREGORIAN METHOD:PUBLISH BEGIN:VTIMEZONE TZID:America/New_York X-LIC-LOCATION:America/New_York BEGIN:DAYLIGHT TZOFFSETFROM:-0500 TZOFFSETTO:-0400 TZNAME:EDT DTSTART:19700308T020000 RRULE:FREQ=YEARLY;BYMONTH=3;BYDAY=2SU END:DAYLIGHT BEGIN:STANDARD TZOFFSETFROM:-0400 TZOFFSETTO:-0500 TZNAME:EST DTSTART:19701101T020000 RRULE:FREQ=YEARLY;BYMONTH=11;BYDAY=1SU END:STANDARD END:VTIMEZONE BEGIN:VEVENT UID:6ca8552ef2e8c60b9c5564077b657c08216 CATEGORIES:FSOMA Events SUMMARY:Florida Business Entity Selection: The benefits & pitfalls of Corporations, S-Corporations & LLCs DESCRIPTION:
Florida Business Entity Selection – The benefits and pitfalls of Corporations, S-Corporations, and Limited L iability Companies
Understanding and selecting an ap propriate entity is an important part of beginning a new business venture. The pros and cons of the legal, tax and operational aspects of each busines s entity should carefully be considered when deciding what type of business entity to use. Often when selecting a business entity, working closely wit h both a CPA and an attorney are beneficial in determining the best fit for your business.
THE C Corporation
The C Corporation is organized by shares and allows for sophisticated options when it comes to dividing ownership. The key differe nce with a C Corp is that its income is taxed on two levels: the company is taxed on the corporate level, and then the profits that get distributed to the shareholders get taxed on the shareholder level. From a corporate hous ekeeping standpoint, C Corporations have more formalities than an LLC and S Corporation, and are more expensive to maintain.
Most small to midsize business clients that I work with end up taking the S-Corp or LL C route. For that reason focus will be on the S Corporation and the Limite d Liability Company.
The S Corporation
An S Corporation is best described as a hybrid between an LLC an d C Corporation. Like the LLC, it is a pass-through entity where all of the profits and losses flow to the owners of the company, but the company itse lf is owned by shareholders. The key advantage to an S Corp over an LLC is that the owners of the S Corp can pay themselves a reasonable salary (subje ct to FICA tax and other withholding requirements), but the remaining net e arnings can be distributed as passive dividend income not subject to self-e mployment tax.
However, to make matters even more interestin g, LLCs can elect to be classified as an S Corporation in the eyes of the I RS to avail themselves of the tax benefits of an S Corp. That provides the business owner with the flexibility of administration that comes with an LL C, and the flexibility of tax treatment of business income with the S Corp.
The LLC
The LLC or Limited Li ability Company is the simplest form of corporate entity. The LLC has becom e a favorable choice for small businesses because they are inexpensive to e stablish, easy to manage and still offer protection from liability stemming from the actions of the company.
LLCs are pass-through entit ies, meaning that the profits from the company pass directly through the co mpany to the owners. Instead of the company itself being taxed and having t o file a tax return, the individuals who own the LLC receive a percentage o f the profits based on their ownership share (their “pro-rata” share), and then they report that income (less deductible business expenses) on their p ersonal income taxes. Of course, if the business is losing money the owners report that loss. Generally, everything flows from the LLC to the business owner, and the profits get taxed one time at the individual level.
LLCs are generally favored because they are inexpensive to form and can be operated with few corporate formalities. Used properly, they can ins ulate you from personal liability and allow you to divide ownership between multiple parties without excessive formalities. The advantage of an LLC ov er an S Corp is that there are less paperwork and corporate formalities wit h establishing and maintaining an LLC. However, if the business starts gen erating a lot of money, it is all reported as ordinary income and subject t o self-employment tax.