A COMPARISON OF BUSINESS ENTITIES



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, and the remaining income earned by that owner may be treated as passive income. Passive owners' income earned is not subject to employment tax. If the company is profitable, owner(s) must take a salary.
6. Corporate Income Tax: Generally subject to state corporate tax. Income and or losses pass through to the owner(s) at their individual tax rates.
7. Recommended Use: For individual business owners, partners and many 1099 ?employees? who receive a reasonable salary and want to receive the remainder of their income from the S-Corporation as passive income, which is exempt from the employment tax.
8. Requirements: Must file a form 2553 with the IRS in a timely fashion to receive this tax status. Some states (i.e. California) require notification of Sub S status.


C-Corporation:
1. Limited Liability: Yes.
2. Number of Owners: One or more owners.
3. Type of Participation: This entity structure allows owner(s) to receive a reasonable salary for their active participation which is subject to employment tax, and the remaining income distributed to that owner may be treated as passive income. Passive owners' income earned is not subject to employment tax.
4. Federal Income Tax Rates: Corporate Tax Rate of 15% to 30% on the corporation's net income. Individual tax rates of 15% to 39.6% for salary paid.
5. Employment Tax: All salaries paid, including to an owner, are subject to employment tax.
6. Corporate Income Tax: Generally subject to state corporate tax.
7. Recommended Use: For specialized clients who plan to take a company public or who need a corporate structure for minor children.

LLC - Taxed As A Sole Proprietorship:
1. Limited Liability: Limited Liability for owner.
2. Number of Owners: One
3. Type of Participation: Owner actively participates in business.
4. Federal Income Tax Rates: Individual tax rates ranging from 15% to 39.6%.
5. Employment Tax: All earnings are subject to the self employment tax.
6. Corporate Income Tax: Subject to tax in some states.
7. Recommended Use: For small business owners who have liability concerns, but do not earn enough net income to need the active-passive income split of the S-Corporation.


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