When starting a business, you will need to choose a business structure that is the most beneficial for you and your business. If you are just starting a business or considering changing your business structure, a common question is whether to form an LLC or an S corporation. Comparing the two can give you a good idea of which is more appropriate for your business.

LLCs and S corps have several attributes to consider:

  • An LLC and an S corporation are separate legal entities created by a state filing. The way they are formed and governed varies in several ways.
  • They both offer limited liability protection, in other words, the owners are not personally responsible for the debts and liabilities. The business itself is the legal entity responsible for the debts and liabilities.
  • They have to comply with state regulations, such as having a registered agent, filing annual reports, paying annual fees, and notifying the state of certain changes.
  • An S corp is not required to pay income taxes at the business level, known as pass-through taxation, and business profit or loss is passed-through to the owners’ personal tax returns. The members of an ​eligible​ LLC may elect to be taxed as an S corp and potentially save money on the way they pay self-employment taxes.

The tax implications of each are very important to consider and you should carefully evaluate each to see which would allow for more profitability. If you are thinking of forming a business or changing your current business structure, consult a professional at H&H CPAs for more information about which structure would be right for you. Contact us today for more information and to set up an appointment to speak with one of our experienced CPAs.