S-Corp, C-Corp & LLC – What’s The Difference?

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In the process of getting your business started you’ll have to determine which legal structure is the best fit for your business. Understanding that sole proprietorship is an option is a great place to start, because so many small businesses feel that this is their best option. Remember that when you choose sole proprietorship, you are entirely liable for your business. If someone sue’s your business, they can go after more than just your business assets, they can take your personal assets also, which is why going with one of the following legal structures is a better option.

C-Corporation

C-corporations are taxable entities, meaning that the corporation is taxed based on its income. This option is more costly than most but can be beneficial if you aren’t planning on distributing any of the income that’s brought in. This option also allows you to utilize a strategy known as “income splitting” as well as dividends, which allow for you to be placed in a lower tax bracket than you would be if you were receiving all of the income.

S-Corporation

This option provides you with an opportunity for some tax savings. With this option you are not subject to self employment tax, but you are required to be paying any employees that are owners, a salary. This is required to be subject to social security and Medicare taxes. One major thing to take into consideration with this option is that in order to maintain the standards, your business has to be making a pretty decent income, which isn’t always the case for small businesses.

LLC

This option doesn’t have any particular advantages or disadvantages in regards to taxes. Federal taxes remain the same with LLC but your business could be subject to additional state taxes. This option has the most advantages, but isn’t always what makes most sense for a business.

For more information on the things that you need to know before your business is up and running, check out DMGL’s online business guide. We have all of the information that you need to decide on what’s going to be the best fit for you!