Differences Between SOLE PROP TO LLC

MazalBuild

What are the differences between, a LLC and sole propriatorship??
What about being taxed as a S corp???

Thoughts on the best way's to run your business and keep as much money as possible in your own pockets.


I would say LLC taxed as a S corp is the best - low liability & lower taxes.

Meetre

Depends on your state. Some states have different requirements for each type of business entity, so you should check with your lawyer and your accountant. Maybe ask others in business in your area as to how local laws affect businesses where you are. Sole prop. gives your personal belongings, like your house and savings, and what ever else you own no protections. If you get sued for something your business does, you can lose your personal belongings in order to pay what you may owe in a lawsuite. LLC is a step up, it creates a new entity that is responcible for your business actions, but some states you can still be personally sued. S corp is even more protection, but much more paperwork and requirements to set up and keep going. there are soooooo many variables to consider that there is no right answer for everyone. some accountants will tell you if you are making more than $250,000, then you should NOT be a sole prop. others put that bar at $100,000. A lawyer will give and entirely different aswer, so you have to figure out what is best in your case.

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DavidC

We run an LLC. I was a sole prop. for years, needed to regroup to bring the son in as a partner. We sat with our attorney to discuss the options with our choices being partnership, LLC or S corp.

He explained each with a few scenarios and sent us off to talk with a CPA, who did basically the same. Then back to the attorney to talk some more and make a desicion.

I strongly suggest you do the same.

My understanding of it is that an LLC and S corp are both pass thru entities, meaning the stock holders are taxed individually based on their % of ownership and the entitiy itself is not taxed.

Both will protect your personal assets as long as you do not comingle any assets. An S corp has been tested in the courts, the LLC has not as of yet. Both are approved by the IRS.

Sole Props and straight partnerships put your personal assets at risk.

You should seek legal council before making this move either way.

Good Luck
Dave

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Meetre

this depends on which state you live in. some states, LLC will protect you if your partner does something, but if you are the responcible party in a law suite, your personal assets ARE NOT PROTECTED. again, check your local laws, this differs state to state.

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DavidC

Which underscores the real need to consult an attorney.

Good Luck
Dave

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HandyHank

LLC is a simple pass thru, there are no tax advantages whatsoever. Be careful with an S corp. once created you cannot take money in and out, it must be taken as w2 income.

Meetre

yes and no. you, as a share holder are entitled to dividend payments from your investment(business) If you have a good accountant that understands law, you can take out money without it being W2 income. If you are involved in the day to day operations, you have to be paid W2, but not all the money you get has to be W2. depending on your situation, 1/2 to 3/4 of the money you take out can be a dividend with no self-employment tax. Check with your accountant, see what they say. If they won't do it for you that way, get a new accountant. I really hate talking about this kind of stuff here, because tax law is very complex. What's right and works best in one situation, is wrong and maybe illegal in another. So, just to re-cap....GO TALK TO AN ACCOUNTANT AND A LAWYER AND FIGURE OUT WHAT IS BEST FOR YOU!!!

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