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Scott City KS | PLEASE NOTE: I am not a CPA or Lawyer.
My understanding is you can designate how your LLC will be taxed; sole proprietorship, partnership, S-Corp, C-Corp.
For sole proprietorship and partnerships, your income is taxed as ordinary income and then has exposure to SE tax (basically 15% for the employer and employee portions of social security and medicare).
S-Corps will flow through through to your tax return. So your portion of that income will be taxed at your personal tax rate. If you have income from other sources that puts you in a high tax bracket, this may not be a good thing. You have to pay yourself a "reasonable" wage, of which, the corp will have to pay the employer portion of SS and Medicare and you personally will have to pay the employee portion of SS and medicare on your wage. So in order to make any tax gains, you have to have earnings outside of what your wage is. Additionally, draws come out of equity. So if your partner takes more draws than you do, he will end up with less of the company.
C-Corps file their own tax return, so it adds another tax bracket. The problem is, though, that to get money out, you have to issue a dividend, which is taxable to you personally. So your share of the income from the company gets taxed twice to get it to your pocket.
Now, as far as indemnity, C-Corps, S-Corps, and LLCs all carry indemnity for the shareholders. Sole proprietorships, and partnerships do not.
Again, that is my understanding. I am not a lawyer or CPA. | |
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Business Structure-LLC or Corp
