I own a website withtwo partners . Should I be a LLC or a S corp?

Question

any advice

Answer 1

Ted,

The question depends on a number of factors.

A sole proprietorship (dba) has the least amount of expense and headaches to setup and operate, but the also the least amount of liability protection. If you go bankrupt as a SP you must declare personal bankruptcy. Income and losses are taxed to you personally and also completely subject to Self Employment tax of 15%.

An LLC offers liability protection and is an organization that is more difficult to set up and operate than an SP but less than a Corporation. Income is taxed on your personal tax return as a "pass through". These taxes may be higher if you have income right away, but if you have losses they are deductible against ordinary income on your tax return. SET is due on your salary, but not necessarily on company profits.

An S- corporation has the same tax status as an LLC but is more complicated to setup and operate. If offers liability protections.

A C-Corp is the most complicated to setup and operate, but income is taxed at the corporate rates which can be less than the personal rates. If you sell assets from a C -Corp and then want the money for yourself, it will be taxed twice - once in the corp and once personally. But if you sell the entire business, you get the lowest possible tax rate, capital gains tax, currently 15%.

In short if you will have early losses and need liability protection do an LLC. If you will have a substantial business with lots of profits especially early on, do a regular C Corp.

Good Luck,
Dana B - President
www.thebarfieldgroup.com

Answer 2

There are different tax consequences to these types of corporations. With either one, you have to file an agreement with the state. Basically the difference is that in an LLC, the corp pays fed taxes. In a S corp the partners pay taxes on the profits they receive from the corp. My advice, have all the partners meet with an attorney. Bring your books. To determine which type of corp is best for you, the attorney will need to know how your corporation operates. Spending a little bit of money up front to set up your business properly will help insure that you and your partners rights.

Answer 3

It is likely different from state to state and situation to situatlion. Most likely it will work out to be a partnership LLC.

I would try your accountant first, and if she doesn't work, your lawyer.
Look into doint the LLC first, since it it the newest latest greatest in most states. If that isnt a fit, then try other routes.