CORPORATIONS VS LLCs
Professional Corp Vs. S Corp Vs. C Corp Vs LLC
Professional Service Corp/PCs:
– It protects its owners from malpractice claims filed against other associates. Best for professional service providers such as medicine, accounting, law, engineering fields.
S Corp
– No income taxes are paid/withheld on the corporate return (1120S). Profits and losses of the business are reported on the individual tax return (1040) of the S Corp’s shareholders – Flow Through Entity.
An S-Corp’s state and local taxes are imposed differently from federal taxes. Although it’s federal taxes flow through to its shareholders, it’s not immune from federal interests and penalties. It may also owe tax on certain income.
Paying yourself reasonable salary and wages, permits shareholder distributions out of the business that are devoid of FICA/Medicaid taxes.
C Corp/Sub-Chapter C
– It separates and protects personal assets from business liability. Thus requires separate accounting for business and personal finances.
– It must file a business tax return (1120) and it’s shareholders must pay income taxes on their individual tax return (1040) – Double Taxation Concept. Especially when property is sold and/or the corporation is liquidated.
– It’s allowed in all US states and recognized outside the US. Thus foreigners/foreign activity is permitted.
– Permits issuance of stock options & bonuses, fringe benefits, public stock offering – IPOs
Other corporations forms are Real Estate Investment Trusts (REIT), Regulated Investment Conduit and Settlement Funds.
Limited Liability Company/LLC
– It separates and protects personal assets from business liability. Thus requires separate accounting for business and personal finances.
– Tax reporting is flexible – business liability is passed to shareholders and the LLC doesn’t pay income taxes. Profits are also divided among the partners.
– It has a centralized and flexible management structure.
Question of the Week: Can an LLC be an S Corp?
YES, an LLC can elect to be taxed as a S Corp or C Corp by timely filing a valid election – Form 2553 with the IRS.
Tip 1: Hire a smart & professional Tax Accountant – Contact CaroKim Consulting
Best Option: S Corp which is governed by the Sub-Chapter S of the Internal Revenue Code. If a business would like to attract stockholders, plans to keep its company private, if a business anticipates losses. It’s also advisable for high and low shareholder income tax brackets, an alternative minimum tax shield and offers flexible taxation options.
Other forms of business operations include sole proprietorship, partnerships and joint ventures, trusts and estates.
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