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Pit Bosses - S-Corp or LLC

vadimivich

vadimivich

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I live in Austria, and have been working as a consultant for the past year and a half. Recently this has meant that I'm doing more and more work in the US and I have an opportunity to sign a more permanent contract with the US branch of one of my clients.

I would like to establish myself as either an S-Corp or an LLC going forward for work in the US, and I would be based out of Nevada (I qualify for residency there if I so choose). I would be working for myself, with no partners, and no plans to take on one. At various times I might have 2 or 3 consultants at a max who would be working for me on part time basis, but this is not likely to be common for now.

So - explain to me why I should pick S-Corp over LLC or vice versa.
 
vadimivich said:
So - explain to me why I should pick S-Corp over LLC or vice versa.
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"Generally" a S-Corp would have more tax benefits. That said, you can organize as an LLC (looser organization and less requirements) and be taxed as a S-Corp.
 
Depends what you want to do- capitalization and taxes are better with an s-corp, but there are limitation on size and who can invest. Conversion to a c-corp is super easy too. VC won't normally touch LLCs. LLCs are easier to set up and manage from the get go and the ease of operation is way better.
 
Based on your description of your situation, I would probably go LLC taxed as S-Corp. That was the route I went while I was working for myself in a similar capacity.
 
RacerDeac said:
Based on your description of your situation, I would probably go LLC taxed as S-Corp. That was the route I went while I was working for myself in a similar capacity.
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This is what I would do based on your description, as well.
 
RacerDeac said:
"Generally" a S-Corp would have more tax benefits. That said, you can organize as an LLC (looser organization and less requirements) and be taxed as a S-Corp.
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what tax benefits does an S corp have over an LLC other than self employment tax?
 
The income flows through the corporation directly to the taxholder so it avoids the initial level of taxation at the corporate level.

If you have a $100 and it's taxed at 35% you'll have $65 which then gets hit with a 15% dividend rate so you end up with $55.25 after tax income on your initial $100.

With an S Corp, the taxpayer recognizes the $100 income on his or her individual income tax return, and pay their normal tax rate.
 
Jeff Fatt said:
what tax benefits does an S corp have over an LLC other than self employment tax?
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That's the main one. There are others but they are pretty marginal especially in a one-man consulting business.

One notable issue is that single-member LLC income shows up on your return as schedule C income, while S corp income comes through on Schedule K (I think that's right). The IRS absolutely loves to audit Schedule C taxpayers. I don't have any figures to back this up, but anecdotal evidence indicates you are much more likely to get audited if you are making most of your income on Schedule C.
 
It still looks to me that from a "tax benefit" standpoint, the payroll tax is the only benefit of the S corp.
 
Also I think there are cases where the LLC and even SMLLC is a better option, for example holding real estate or where built in gains tax could be an issue. Not applicable to this discussion of course, but not sure I agree with the statement that the S corp has more tax benefits. I could certainly be wrong though.
 
Well, it's sort of moot because qualifying entities can "check the box" and elect to be treated as S corps.

My dad has LLCs that hold the title to rental property but they are taxed as S corps.
 
Jeff Fatt said:
Also I think there are cases where the LLC and even SMLLC is a better option, for example holding real estate or where built in gains tax could be an issue. Not applicable to this discussion of course, but not sure I agree with the statement that the S corp has more tax benefits. I could certainly be wrong though.
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Obviously my statement was with regards to this thread, not every conceivable possibility that could ever exist in the universe.

As for other benefits, you can also take loss deductions on your personal income tax along with some other things, but the payroll tax is the big one and the one that will apply to the OP's proposed situation (single owner earning consulting fees). Around a $6000-8000 "big one" for someone making around $100,000 IIRC from the calculations I ran a few years ago (seems to be backed up by the link I posted above as well).
 
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DeaconCav06 said:
Well, it's sort of moot because qualifying entities can "check the box" and elect to be treated as S corps.

My dad has LLCs that hold the title to rental property but they are taxed as S corps.
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No doubt. It would be much easier to organize as a single owner LLC and be taxed as an S-Corp. You avoid some of the S-Corp paper work that way.
 
Not trying to nitpick but your statement was ""Generally" a S-Corp would have more tax benefits." I didn't interpret that as being in regards to this thread. Not to mention from what I know about it thats not the case, so was just looking to be educated. From a tax standpoint, payroll tax is pretty much it. And as mentioned there are situations where there are tax disadvantages to an S corp as compared to an LLC.
 
DeaconCav-I don't think that is a preferred structure for holding real estate these days. He may have done that years ago when it was much more common. Estate tax issues with the S corp taxation.
 
Jeff Fatt said:
Not trying to nitpick but your statement was ""Generally" a S-Corp would have more tax benefits."
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But my statement was in direct reply to his quoted question of "So - explain to me why I should pick S-Corp over LLC or vice versa." I guess I confused you with "generally", but I only meant to imply that we don't know all of the details of his plans: how much he plans to make, how his employees will be paid (straight through or will he take a cut?), whether he expects to have expenses/losses, etc.
 
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