LLC vs Corp is a liability protection decision. Consult an atty.
LLC vs Corp is not a tax decision. An LLC is at the state level. There is no federal tax code for LLC, so you can choose to tax the LLC as a sole proprietor, partnership, S-corp or C-corp depending on the number of members and what you need to accomplish.
There are no magic tax savings from any entity selection. Business expenses are always deductible. Full stop. Personal expenses are never deductible. Full stop. No entity magically changes non-deductible personal expenses into deductible business expenses. Read this paragraph again.
The ONE exception is that S-corp rules allow business income in excess of "reasonable compensation" to pass through to the owner without the added social security and medicare tax that attaches to "wages." So if the business is generating enough CASH to pay a reasonable salary plus taxes, then you can set up the owners on payroll for that reasonable salary and then pass the remaining income to the owners as distributions (subject to income tax, but not SS/Medi).
There are a few pitfalls to an S-corp, the main one being that all capital and distributions MUST be proportionate to the members' ownership percentages. This doesn't always suit the owners' desires. Running payroll is a hassle. A lot of owners think this is what they want, then they don't do the work, thereby negating the advantage they wanted.
Mark Wagner CPA
