A limited liability company (LLC) is a legal business entity that can file taxes as a sole proprietorship, partnership or corporation. An S corporation is a way for corporations to pass profits or losses onto shareholders to file on their personal tax returns.
That you can choose to file taxes as a sole proprietor, partnership or corporation is a huge advantage of an LLC because you can choose what works best for you.
You can offset your income from other sources with your LLC by using the “basis” amount you have put into the company in stock and cash.
In an S corporation, the profits or losses are reported to the Internal Revenue Service on a Schedule K-1 for each shareholder. Each shareholder pays taxes on these profits at his individual tax rate, not the higher corporate one.
In an S corporation, you only pay employment taxes on your actual wages, not the entire profit of the company.
You can choose to have your LLC file taxes as an S corporation. This means your business legally is an LLC but for tax purposes is an S corporation.
Kim Dushinski is an entrepreneur with more than 25 years of experience in sales and marketing. She has served as a mobile marketing trainer, marketing director at a travel agency, desktop publisher, business marketing consultant and partner in a book publicity firm.