Why does taxation differ between an LLC and an S-Corp?

Limited Liability Corporations, or LLCs, are taxed differently from S-corporations, but have you ever wondered why? Although both are pass-through tax entities that don’t pay taxes at the business level, both still have highly different requirements for tax and tax structuring.

LLC vs. S-Corp Taxation

One of the main differences in how LLCs are taxed vs. S-Corps can be determined by the number of owners. S-corps are legally required to file business taxes, but LLCs don’t always face this mandate. Only if an LLC is owned by more than one person must it file business tax returns, although in both instances pass-through tax law means that business profit and loss are tracked and paid via the owners’ personal tax returns versus business tax returns.

LLC vs. S-Corporation tax benefits become more apparent when you look at self-employment tax. Because S-corporations allow the company to treat the owner as an employee with a paid salary, owners may be able to reduce the amount taxed under specific laws.

So Which is Better, an S-Corp or an LLC?

That question isn’t so simple to answer. You need to take into account the needs of your business and the benefits and restrictions placed on LLCs versus S-corps. For example, S-corps have restrictions placed on ownership, entirely different management structures, and much more complicated forms and ongoing requirements, offsetting the benefits of taxation. LLCs have no restrictions on ownership and fewer maintenance requirements, allowing for greater simplicity and ease of operation.

Get Started Filing for Your Corporation

If you need help with LLC online filing or you’re making the decision to initiate S-class corporation status, our forms ,wizards, and tools can help you make the appropriate decision regarding your business. Our specialists can also offer consultations and guidance through a quick conversation that will set you on the right path to forming your corporation today.

Limited Liability Corporations, or LLCs, are taxed differently from S-corporations, but have you ever wondered why? Although both are pass-through tax entities that don’t pay taxes at the business level, both still have highly different requirements for tax and tax structuring.

LLC vs. S-Corp Taxation

One of the main differences in how LLCs are taxed vs. S-Corps can be determined by the number of owners. S-corps are legally required to file business taxes, but LLCs don’t always face this mandate. Only if an LLC is owned by more than one person must it file business tax returns, although in both instances pass-through tax law means that business profit and loss are tracked and paid via the owners’ personal tax returns versus business tax returns.

LLC vs. S-Corporation tax benefits become more apparent when you look at self-employment tax. Because S-corporations allow the company to treat the owner as an employee with a paid salary, owners may be able to reduce the amount taxed under specific laws.

So Which is Better, an S-Corp or an LLC?

That question isn’t so simple to answer. You need to take into account the needs of your business and the benefits and restrictions placed on LLCs versus S-corps. For example, S-corps have restrictions placed on ownership, entirely different management structures, and much more complicated forms and ongoing requirements, offsetting the benefits of taxation. LLCs have no restrictions on ownership and fewer maintenance requirements, allowing for greater simplicity and ease of operation.

Get Started Filing for Your Corporation

If you need help with LLC online filing or you’re making the decision to initiate S-class corporation status, our forms ,wizards, and tools can help you make the appropriate decision regarding your business. Our specialists can also offer consultations and guidance through a quick conversation that will set you on the right path to forming your corporation today.

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