Maybe you have a solid business idea and a plan, but do you know what kind of business structure you want for your new venture? Two popular choices for many business owners are limited liability companies (LLCs) and S Corporations. Whether it’s good for you to choose either of these structures depends on your specific business needs. We can help you make a choice by walking you through how these business structures work.
When comparing an LLC vs. an S Corp in Florida, it’s important to understand that an LLC is a separate business entity, and an S Corporation is a tax status you can elect for your business entity. In fact, some LLC owners choose to run their LLCs as S Corporations.
If you’re trying to figure out if it’s better for you to run an LLC or S Corp in Florida, it’s helpful to compare an LLC with S Corp status to an LLC without S Corp status.
Depending on the taxes you’re paying, the tax liabilities of S Corporations and LLCs can overlap or greatly differ.
If you’re comparing the federal income tax liability of an S Corp vs. an LLC in Florida, you might find one significant and attractive similarity. Neither LLCs nor S Corporations pay federal income taxes at the entity level. Only the owners of LLCs and S Corporations pay federal income taxes on their portions of business income. This is called pass-through taxation.
When comparing an LLC vs. and S Corp vs. C Corp, LLCs and S Corporations are pass-through tax entities, and C Corporations are subject to double taxation. Double taxation means that a C Corporation has to pay federal income taxes at the entity level, and its shareholders have to pay federal income taxes on their share of the business income.
One way LLC and S Corporation federal tax liabilities differ greatly is regarding self-employment tax obligations. A standard LLC member has to include their share of the business income and their guaranteed payments in their taxable wages for self-employment taxes. If an S Corporation owner sets a reasonable salary for themselves, only that salary is subject to self-employment taxes and the remaining business income can be a distribution. With the right strategy, an S Corporation owner can save more on self-employment taxes than a standard LLC member.
Your state tax obligations as an LLC owner vary depending on what kind of LLC you run.
If state and federal tax laws classify your LLC as a corporation, you have to file a Florida corporate income tax return. If you run your LLC as a partnership, and one of your partners is a corporation, you have to file a Partnership Information Return and a corporate income tax return. S Corporations that have capital stock have to pay Florida corporate income taxes. In many cases, the base corporate income tax rate is 5.5%. Single member LLCs not owned by corporations don’t have to file Florida corporate income tax returns.
Florida doesn’t have personal income tax, so LLC owners won’t pay Florida taxes on income that passes through to them from the business.
If you’re trying to compare an S Corporation vs. an LLC in Florida, you can find a lot of differences between the ownership rules. Both business types have strict ownership rules, but in different ways.
An S Corporation can’t have more than 100 owners and can’t have more than one class of shares. Also, the following individuals or entities can’t be S Corporation owners (however, an S corp can own other businesses):
A standard Florida LLC can have unlimited members. But an LLC often can’t accept new members without the consent of all existing members.
An LLC is a type of business entity that’s separate from its owners (also called members) and managers. This means that an LLC’s members and managers aren’t personally liable for the legal and financial obligations of the LLC. An S Corporation isn’t a business entity; it’s just a tax status. An S Corporation can only offer the liability protection that comes with the underlying business entity that has the S Corporation tax status. If you run your LLC as an S Corporation, you get the personal liability protection that comes with running an LLC.
When it comes to setting up an LLC vs. an S Corp in Florida, an S Corporation takes more time. This is because you have to set up an underlying business entity first and then file additional paperwork to give that entity S Corporation status.
To set up a Florida LLC, you have to file Articles of Organization with the Florida Department of State. These Articles of Organization need to provide the state with important information about your business, including information about how to contact you and who your management team is.
After making your LLC official with the state, you can elect to make it an S Corporation by filing paperwork with the IRS. You first have to file Form 8832 to have the IRS tax your LLC as a corporation. You then have to file Form 2553 to give your LLC S Corporation status.
Running an LLC in Florida also requires you to file Annual Reports with the Department of State.
Keeping your LLC in good standing means regularly filing paperwork with the government. Fulfilling these requirements can be a lot when you’re trying to build your business. We can take the stress out of your business compliance obligations with our Worry-Free Compliance Service. Our service can help you stay on top of your compliance deadlines and handles up to two business amendments per year for you.
Yes. If they’re compliant with the ownership rules, LLCs and C Corporations can convert to S Corporations at any time.
After you’ve filed your LLC formation documents with the state, you can make your LLC an S Corporation by filing Form 8832 and Form 2553 with the IRS.
No. An S Corporation isn’t a separate business entity, so you still call your LLC an LLC after you elect to make it an S Corporation.
Because it depends on your specific circumstances, it’s best to ask legal and financial professionals about the ideal time to choose S Corporation status. You also need to make sure your business is eligible to be an S Corporation before you make the election. If you’re ready to run an S Corporation, you have to file the paperwork within the first two months and 15 days of the tax year when you want the status to start.
Business formation and compliance obligations can be a pain. But you don’t have to let these requirements stand between you and a successful new venture. We can help you get your business started effortlessly with our Florida LLC or Florida S Corporation Formation Services. And once you’re running your new venture, we can help you keep it legally compliant with our Worry-Free Compliance Service.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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