Setting up your own business can seem intimidating and be frustrating to those who want to turn their passion into a company. Whether you are creating a Limited Liability Company (LLC), a Subchapter S-Corporation (S-Corp) or a Subchapter C-Corporation (C-Corp), we will provide you with necessary information to decide which option best suits your needs.
Creating an LLC has a lot of benefits. For example, business owners are provided with limited liability coverage and all of their assets are conveniently protected. Creditors are not able to go after personal belonging assets such as a house, car or retirement account of the company’s owner if the business is in debt. In the case of smaller companies, not having creditors constantly lurking with the potential threat of taking away personal belongings can be a huge relief. Additionally, a LLC is known as a pass-through entity, which helps avoid double taxation.
Establishing an S-Corp has its benefits as well. Just like LLCs, S-Corps are known as pass through entities. Essentially, owners pay the income tax for these entities as part of their personal tax returns. This helps them avoid double taxation, which can be a large inconvenience for new companies. Owning an S-Corp means that the business owner(s) do not have to pay the 15% Self-Employment Tax that LLC Members and Sole-Proprietorships are required to pay. A S-Corp owner can also decide if they want to receive both their salary and dividend payments from the company, which could lead to paying less taxes overall. Also, it could prove to be helpful for business owners, as higher taxes can cut a significant portion of a budget.
A C-Corp can also be beneficial for some companies, but particularly smaller companies can benefit from this setup, since it can potentially receive lower tax rates. However, owners might have to deal with double taxation on dividends paid to the owner(s). As of January 1, 2018, the C-Corp tax rate has been reduced from 35% to 21%, which is expected to be a permanent change. C-Corps also utilize a fiscal year, which means there is a two-year cushion for companies to find out their deductions based on their profit/income for the year. There are also medical insurance benefits. A C-Corp may pay for any medical expenses that their employees’ insurance plans don’t cover, which gives employees an incentive.
The LLC, S-Corp and C-Corp setups each have their own benefits, but it is imperative to choose the correct one for your business, as each company is unique and different. What’s right for one business may not be right for another!
For more information or assistance on setting up a company, contact us today! Call (781) 436-5810 or email us at firstname.lastname@example.org.