Call Us 270-200-4264 ☰ ˟
Start Quote Now Contact Us
Logo
270-200-4264
  • Home
  • Coverage Options
    • Amazon Insurance Accelerator
    • Business Auto
    • eCommerce Insurance
    • General Liability
    • Inventory Insurance
    • Inventory Storage
    • Longstanding Amazon Insurance
    • Ocean Marine Cargo Insurance
    • Product Liability Insurance
    • Umbrella
    • Workers Compensation
  • Make A Payment
  • Blog
  • Requirements for Sellers
  • Resources
    • Refer a Friend
    • Our Carriers
    • Our Partners
  • About Us
    • Our Story
    • Our Team
    • Testimonials
    • Privacy Policy
    • Podcast and Articles
  • Contact
Auto Icon Home Icon Business Icon Life Icon Health Icon Boat Icon
Home > Blog > S Corp vs. C Corp vs. LLC: Which Business Structure Is Right for You?
WEDNESDAY, OCTOBER 11, 2023

S Corp vs. C Corp vs. LLC: Which Business Structure Is Right for You?

Any business owner setting up a new company faces the inevitable question: What type of business is best for our business? It is never an easy answer. There are many choices, and each one has its own set of rules.


There are partnerships and there are corporations, but we will just focus on the three most popular business entities: S corporations (S-corps), C corporations (C-corps) and LLCs Limited Liability Companies.

Each type of organization provides a layer of liability protection for your assets, but taxation differs between the three options.
An S-Corp and a C-Corp are different tax entities even though they both are corporations. They file similar tax forms, but an S-Corp files 1120-S and a C-corp files 1120-C.
The IRS treats an LLC either as a corporation, partnership or as part of your individual tax return. The income from an S-Corp and an LLC “passes through” to your personal tax return and is taxed at your individual rate. The income from a C-Corp is taxed at corporate rates.


You may want to form an S-corp if you:

• Only have a few shareholders. S-corps must have fewer than 100 shareholders
• Want your company’s income taxed at individual rates. All income from an S-corp flows to your individual tax return. Assuming your compensation is reasonable, you would also avoid being taxed on any distributions you take from the business. S-corps can also take advantage of the Qualified Business Income Deduction, which allows many (but not all) business owners to deduct as much as 20% of their company’s income before taxes.

• May want to become a C-Corp someday. Converting from an S-Corp to a C-Corp is not difficult. However, converting from an LLC to a C-Corp may require additional filings and formation documents.

• Want to use the cash basis of accounting. S-Corps can elect to use the cash method of accounting, which may be preferable depending on your company’s size and complexity. However, you have to use the accrual method—which reflects accounts receivable and liabilities—if you have inventory.
• Want a tax-advantaged way to take money out of your company. When you have a C-Corp, distributions are designated as dividends, which get taxed. With an S-Corp or an LLC, you can distribute extra cash from your business with no additional taxation. However, there are some caveats to doing this, which you should discuss with your tax advisor.

You may want to form a C-corp if you:
• Want to separate your company from your personal finances. C-Corp income does not pass through to your individual tax return, so there is no connection between owning a C-Corp and your personal financial situation.
• Desire shareholder flexibility. You can have unlimited shareholders for your C-Corp, and shares can be easily bought, sold and transferred between outside parties. Unlike S-Corps, investors in C-Corps can include other C-Corps and S-Corps (with some exceptions), LLCs, partnerships and many trusts. If you want to attract outside investors, a C-Corp may be a good option.
• Have a high individual tax rate. The maximum individual tax rate is 37%, but the maximum corporate tax rate is 21%. If you have a pass-through company like an S-Corp, you could potentially be paying higher taxes on your income.

You may want to form an LLC if you:
• Want fewer restrictions on your management structure. LLC members have more options for how the organization is operating than an S- or C-corp. An LLC has an operating agreement where managers decide on its rules, policies and procedures.
• Want a more flexible ownership structure. Unlike S-corps, you can have as many “members” of an LLC as you like. You can also have non-U.S. citizens/residents, corporations, other LLCs, partnerships and trusts as shareholders. Plus, you can have subsidiaries and different classes of stock.
• Want to be taxed at individual rates. Like an S-Corp, an LLC is a pass-through organization, meaning your income is taxed at your individual rates. If you have a relatively low individual rate, this can be advantageous. As a pass-through entity, an LLC can also take advantage of the Qualified Business Income Tax Deduction.
• Want to use the cash basis of accounting. Like an S-Corp, LLCs can elect to use the cash method of accounting.
• Want a tax-advantaged way to take money out of your company. This treatment is similar to an S-Corp as described above.

Your specific situation may require more considerations than provided in this article. Find all the facts about different business entities on the IRS website:
• S-corps
• C-corps
LLCs

 
Posted 6:05 PM

Share |


No Comments


Post a Comment
Required
Required (Not Displayed)
Required


All comments are moderated and stripped of HTML.

NOTICE: This blog and website are made available by the publisher for educational and informational purposes only. It is not be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state. By using this blog site you understand that there is no broker client relationship between you and the blog and website publisher.
Blog Archive
  • 2025
  • 2024
  • 2023
  • 2022
  • 2021
  • 2020
  • 2017

  • general(7)
  • uncategorized(3)
  • amazon seller insurance(2)
  • insurance(2)
  • coverage(2)
  • amazon sellers(2)
  • well insurance(2)
  • slider(2)
  • policy(1)
  • liability(1)
  • e-commerce insurance(1)
  • liability insurance(1)
  • ocean marine cargo insurance(1)
  • dietary supplement insurance(1)
  • ocean marine insurance(1)
  • laibility(1)
  • bloomberg news(1)
  • e-commerce(1)
  • commercial general liability insurance(1)
  • cyber liability insurance(1)
  • hangout(1)
  • professional(1)
  • business owners policy(1)
  • secuity(1)
  • account suspension insurance(1)
  • cascadia sellers solutions(1)
  • cyber(1)
  • online(1)
  • ecommerce insurance(1)
  • product liability insurance(1)
  • benefits(1)
  • workers(1)
  • business insurance(1)
  • inventory storage insurance(1)
  • amazon suspension insurance(1)
  • marine cargo insurance(1)
  • amazon(1)
  • compensation(1)

View Mobile Version
Facebook
LinkedIn
Google+
Get A Quote
Contact Us
As Seen On
Bloomberg News
The Seattle Times
The Denver Post
Insurance Journal
Speak To An Agent
Resources
Products
Payment Options
Blog
Contact Us
About Us
Refer A Friend
Our Carriers
Contact us P: 270-200-4264
F: 800-687-5454
sales@well-insurance.com
© Copyright. All rights reserved. Powered by Insurance Website Builder.