At Mark S. Freedman, CPA, Inc. we believe that educating our clients to be savvier in how they handle their finances and investments, will make a big difference in their tax obligations and bottom line. Please enjoy the article below. We will periodically be adding material to help your nest egg grow.
This Month's Article:
To be, or not to be – that is the question…a Corporation or LLC
When business owners choose to become a corporation or limited liability company (“LLC”), they often do so without investigating whether or not it is the best fit for their business. An LLC or a corporation formation should be considered when the business owner has personal wealth that could be lost in lawsuits or liens against the company. Having either of these designations protects your personal monies and property from being seized. Your business and your personal wealth are in a sense "divorced" from one another.
Business owners who incorporate or create an LLC can make a special election (S Corporation) and save up to $10,000 in social security taxes. Multiple owners who elect to form an LLC can allocate profit, losses, and ownership in different percentages.
Although, there are legal differences between these two types of entities, this article will deal only with the operational differences. The following diagram applies only for the State of California.
|Meeting required||Minimum of 1 per year for
Board of Directors
|Issue stock (certificates)||Yes||No|
|Flexibility in ownership &
|Officers & directors required||Yes||No|
|Separate tax returns required||Yes||Single owner - No
Multiple owners - Yes
|Taxable income subject to
15.3% self-employment tax
|$800.00 minimum tax due
As you can see from the diagram, both options have its advantages and disadvantages. To find out how your business might profit from becoming a corporation or an LLC contact the offices of Mark S. Freedman, CPA, Inc.
Mark S. Freedman, CPA Inc.
8949 Reseda Blvd., Suite 123
Northridge CA 91324