LLC or S-Corp?
Which business type is better for self-employed people – LLC or S-Corp? This episode takes self-employment tax a step further with a look at the pros & cons of LLCs and S-Corps, including how S-Corps help self-employed people save on employment taxes (but add more complexity and paperwork). At the end, you should understand the basics of sole proprietors, partnerships, LLCs, and S-Corps, and how each of them gets treated by the IRS when it comes to income & employment tax.
Key Takeaways:
Key Takeaways:
- Sole proprietors & partnerships are simple to run, but offer no distinction between owner and business when it comes to income, profits, or liability.
- LLCs offer liability protection between owner(s) and business, but they don't change your tax treatment. LLC members get taxed the same way as sole proprietors & partners.
- The S-Corp Election allows LLCs to be treated as S-Corps for tax purposes. That means you can treat yourself as an employee and pay yourself a salary.
- The remaining non-salary profits avoid employment tax when they flow from an S-Corp to shareholders, but do not avoid income tax.
