As you start to think about incorporating your business in Atlanta, you may feel a little confused about choosing to be either an S corporation or a limited liability company, or LLC. According to the Internal Revenue Service, you must meet a number of qualifications to be considered for an S corp, such as the following:
- The business has 100 or fewer shareholders.
- There is only one type of stock available.
- You must be a resident of the U.S.
- The company will use an IRS-approved tax year.
Most people deciding between an LLC and an S corp should be able to qualify under these terms. Both of these structures can protect your personal assets, and both can enable you to avoid paying both corporate and personal tax.
Knowing the differences can help you make your decision. For example, if you form an LLC, you will still have to pay a self-employment tax. Further, you have to ensure that personal and business are always kept separate. On the upside, incorporating as an LLC is fairly inexpensive and easy to do.
With an S corp, you are able to pay yourself a salary, deduct payroll expenses and even distribute profits as dividends to the owners. The tax placed on dividends is lower than the tax on income. However, there are strict requirements for starting an S corp, and depending on where you do business, you may owe an additional state tax.
Making a decision between the two can be difficult, but the correct choice can also mean furthering the life of your business. While this information may be useful, it should not be taken as legal advice.