Hi All,
I’m in the DMV (DC Metro) area. I own a home improvement company and I also invest in real estate. I have an LLC now that only covers me in the state of MD.
My first question is: How beneficial is it to set up an S-Corp? And should I make the LLC a subsidiary of the S-Corp? Or visa versa? And lastly, what is the average cost for setting up and maintaining an S-Corp? Currently paying roughly $300 for the LLC annually.
dlmcgill
setup and maint costs should be about the same.
however, rather than an S-corp, you should use an LLC taxed as an S-corp. because it’s an LLC, it’s easier to administer (no requirements for minutes, meetings, etc).
an LLC cannot be a shareholder in an S-corp, so that option is out.
can’t see why you would want to make the S-corp a member of the LLC; that would seem to defeat any asset protection offered by the LLC.
How beneficial is it? Depends on why you think you need it. remember, an LLC is an asset protection device, NOT a tax savings device.
mcwagner,
I need it for a tax savings device. So I gather its better to separate the S-Corp from the LLC entirely. If I’m understanding correctly???
Setup and Maintenance is the same cost. What cost is that? Thanks in advance.
dlmcgill
setup, maint, tax prep, should all be about the same for S-corp or LLC.
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LLC will not save you taxes. In fact, LLC is not even a tax choice. There is no tax code for LLC, so you can choose to tax it as a Sch C, partnership, C-corp or S-corp, depending on circumstances.
an S-corp (or LLC taxed as an S-corp) could save you taxes IF it’s generating enough cash to pay you a W-2 salary AND have distributable cash left over. The savings is in additional Fica/Medi that can be avoided.
Other than that very narrow scenario, S-corp will not save you taxes, either.
business expenses are always deductible. Neither LLC nor S-corp magically creates additional deductions.
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There are, however, significant administrative differences between an LLC and S-corp. All corporations are required to have minutes, keep stock records, have meetings, etc. LLC’s are not required to do these things.
From a tax perspective there is no difference. To the IRS, an LLC taxed as S-corp IS an S-corp.
So, if you can have the same tax structure as an S-corp, but without the administrative hassles, you are better off to have an LLC taxed as S-corp.
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There are also significant asset protection differences between LLC and anything else. So before making an ASSET PROTECTION decision, you need to consult an atty.
I hate to admit it. But I’m more confused now than ever :biggrin
Thanks Mark.
dlmcgill
Why does your LLC limit you to MD? LLCs do cross state boundaries and can be registered to do business in any state.
What am I missing?