LLC or S-Corp? What Accounting in Land O' Lakes Business Owners Should Know

LLC or S-Corp? What Accounting in Land O' Lakes Business Owners Should Know

An LLC and an S-Corp get treated like the same thing all the time, and they are not. An LLC is a legal structure you set up with the state. An S-Corp is a tax election you file with the IRS on top of that structure. When I talk with clients about accounting in Land O' Lakes, this mix-up comes up more than almost anything else.

Why Accounting in Land O' Lakes Clients Mix Up LLC and S-Corp

The S-Corp election can lower your self-employment tax once your profit is high enough to support running payroll and paying yourself a reasonable salary. Below that point, the extra paperwork and payroll cost can eat up the benefit instead of creating one.

The hardest part is to know when to make the jump. When is it worth becoming an S corp, filing a separate tax return, running payroll, and having more admin fees? There's really only one way to know, and that's to run what's called an S corp analysis.

An S corp analysis allows you to determine how much you will actually save in making the switch, what a reasonable salary is for your company through a reasonable comp analysis, and whether it's worth it. You could be saving thousands of dollars when you switch to an S corp. I found that most of the time, it's not worth running until you're over $75,000 in profits, but every CPA has different opinions on what a reasonable salary should be, and some might even make the election much earlier.

If you are weighing LLC against S-Corp for your accounting in Land O' Lakes business, the right call depends on your actual numbers, not a rule of thumb you read online.

Frequently Asked Questions

Does forming an LLC automatically make me an S-Corp? No. An LLC is a legal entity type. You have to separately file an election with the IRS to be taxed as an S-Corp, and it does not happen on its own.

Is an S-Corp election always worth it? Not always. It usually makes sense once your profit is high enough to justify the cost of running payroll. Below that, the paperwork can outweigh the savings. If you are not sure which structure fits your business, that is worth a real conversation. [contact link]