Incorporating your business is an important first step down the road to success. Benefits of incorporating include asset protection, increased credibility with customers and creditors, and tax savings. There are numerous types of entity structures, the most common of which is the LLC. Below are some frequently asked questions as they pertain to LLCs and business entities in general. Feel free to schedule a consult with our office if you wish to discuss your business in more detail.
FAQs
Q: What is the difference between a C Corp, an S Corp, and an LLC?
A: A C Corp is the most original of the 3. It is essentially its own independent entity separate from any of its owners. It is taxed on its earnings at the corporate level and none of the income is attributed to its shareholders unless it is taken out of the corporation by means of a dividend. Current tax laws afford C Corporations preferential tax rates. However, beware of the biggest drawback to a C Corporation! Double taxation! The corporation gets taxed on its earnings and then when the shareholders take out company profits by means of a dividend they are taxed again at the personal level.
An S Corp. is similar to a C Corp with the exception of the double taxation issue. All earnings of an S Corp are allocated to each owner according to their percentage in the company. Each owners pays his share of taxes on this income just once at the personal level. They will pay taxes on their share of the company profits regardless of whether or not they actually received the income from the company in the form of a distribution or not.
An LLC is very similar to an S Corp with just a few minor differences. The biggest difference between an LLC and an S Corp pertains to payroll and self-employment taxes. LLCs prove to be more flexible in the early stages of a business whereas S Corps might afford greater tax savings down the road. An LLC can later elect to be taxed as an S Corp which makes choosing an LLC to start one’s business more appealing.
Q: What are the costs involved with opening and maintaining an LLC?
A: The cost of opening an LLC depends on which state you are located in. NJ charges a fee of $128.50 when opening an LLC, whereas NY charges $200. Our fee to open an LLC is $250 in addition to any state filing fees. Some states require what’s called an annual report. This is essentially just an update of company contact and ownership information. It is not to be confused with a tax return. NJ requires such a report annually and there is a $50 state filing fee. NY has a similar requirement every 2 years and charges a $9 filing fee.
Q: How does an LLC file taxes?
A: Single-member LLCs will file a Schedule C with the owner’s personal tax return. Multi-member LLC are treated as partnerships for tax purposes. Partnerships file their own tax returns due March 15. The due date could be extended to September 15. Partnership tax returns are generally just informational returns to show each partners share of income and expenses. Taxes are usually not paid with the partnership filing but are instead paid by each individual partner upon filing their personal tax return.
Q: How do I get more information on opening an LLC or another entity type?
A: Don’t hesitate to contact our office at 732-987-9975.
Q: How do I open an LLC now?
A: Click the link below!