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What is the difference between a LLC and an S Corp?

On Behalf of | Sep 14, 2019 | Firm News

A very common question new business owners have in Delaware is, “What is the best way to structure my business in order to save on taxes?” To this end, there are many different options to choose from when you are starting out. One of the more common decisions many entrepreneurs will face is how to designate their business, as an LLC or otherwise. However, according to Forbes, a LLC is actually a business structure while an S corporation merely indicates how that business is taxed.

Limited liability companies are very popular with budding entrepreneurs since they are easier to manage, given their comparatively low amount of reporting requirements. To break this down properly, you need to understand how the IRS sees different types of businesses. LLC has no tax designation unto itself. An LLC can actually choose to be taxed either as a C Corp or as an S corp if desired. If your LLC is owned by a single individual, it will, by default, be taxed the same way as a sole proprietorship. If there are multiple people who own the LLC, it will be taxed like a partnership.

So, the real question here is: “Should I choose to have my LLC be taxed as an S corp?” The answer to this, is, of course, dependent upon your particular situation. The only real reason why most business owners would choose their LLC to be taxed as an S corp is if it saves them money on taxes. Be aware, however, that should you choose to have your LLC taxed as an S corp it will make your taxes slightly more complicated as compared to being taxed as a sole proprietor.