Texas Accountants! What are the differences in taxes for an LLC and a C Corp?

Question

Assume a small company. 2-4 Employees. The business will make less than $100k each year. Likely between $30k - $90k. No double taxation on the C Corp, we'll take the money out via salaries.

But what about the franchise tax? And what other differences should we be aware of?

Answer 1

I'm not an accountant, but I have a corporation in Texas. Either way, it's expensive and you're going to spend several hundred dollars, so if your business doesn't have much liability now, you may want to wait and just file a DBA as a partnership.

For either of them, you need to file with the Secretary of State, here's the link, it'll tell you how to file, fees, etc.
http://www.sos.state.tx.us/corp/businessstructure.shtml

With your size business, if you go as a corporation, you should elect to be an "S" corp. This is very easy and lets you pass any profits from the corporation to the shareholders as wages. Any losses are passed to the shareholders and you deduct from you personal taxes. The corporation files a year end tax form, and K-1 showing the percentages for each shareholder. You then file a supplement page with your 1040.

The main difference with the LLC I think is record keeping. If you're a corporation, you need to have annual meetings, keep articles of incorporation, detailed records of any changes. Costs are about the same. I forget the filing fee, but I think it's like $400 to register the name and paperwork. You don't need a lawyer if you can find the paperwork that'll show you what you need.

Franchise tax is nothing to worry about. As a corp in Texas, you need to file 2 forms with the state every tax year. One just shows the names of the directors and the other is your income; but if it's less than $250,000, you don't owe anything.

Answer 2

if you are taking out money out via salaries you are operating as a partnership... you can be a partnership or an LLC organized as a partnership

salaries are required of corporations and LLC's organized as corporations

an LLC can be a sole owner, partnership or corporations for IRS purposes.

You need to find a tax professional to make sure you are are organized the best way possible.

Answer 3

you cant just "take the money out via salaries"

the salaries have to be reasonable. If one of the shareholders does 2 hours of work, he cant get $30000 worth of "salary"

If your business is going to make $90k, you should hire an accountant for tax advice.