Subchapter S corporations are well-suited to small businesses because the shareholders are not subject to double taxation. This form of business organization is also good for small businesses because it enjoys all the benefits of a corporation such as limited liability.
It can have up to 100 stockholders and must have one stockholder. If any stockholder provides services to the corporation, that stockholder must receive some sort of compensation.
The Subchapter S corporation files taxes on the Federal Form 1120S. Since earnings pass through to owners, they show them on their personal tax forms.
The Limited Liability Company (LLC) is not a federal tax entity. It is designated at the state level where the business incorporates. It can be taxed as a corporation, partnership, or sole proprietorship. Usually, the LLC is taxed as a partnership at the federal level and uses the same income tax forms used by the partnership.
LLC's do not have to have a general partner. They can be composed of shareholders who designate management responsibility to salaried employees. As a result, shareholders are not subject to self-employment tax unless they receive a "guaranteed payment" for services to the LLC.
There are a number of changes to federal tax law in 2008 and there are likely to be more in 2009. Note the tax return due dates for 2010.
It can have up to 100 stockholders and must have one stockholder. If any stockholder provides services to the corporation, that stockholder must receive some sort of compensation.
The Subchapter S corporation files taxes on the Federal Form 1120S. Since earnings pass through to owners, they show them on their personal tax forms.
Limited Liability Company
The Limited Liability Company (LLC) is not a federal tax entity. It is designated at the state level where the business incorporates. It can be taxed as a corporation, partnership, or sole proprietorship. Usually, the LLC is taxed as a partnership at the federal level and uses the same income tax forms used by the partnership.
LLC's do not have to have a general partner. They can be composed of shareholders who designate management responsibility to salaried employees. As a result, shareholders are not subject to self-employment tax unless they receive a "guaranteed payment" for services to the LLC.
There are a number of changes to federal tax law in 2008 and there are likely to be more in 2009. Note the tax return due dates for 2010.