Finding the right legal structure is important for any business. This will save you thousands of dollars in taxes yearly. There is also a benefit by having protection from lawsuits, the ability to expand your business, low operating expenses and minimal paperwork.


Should you consider a limited liability company or LLC over an S corporation or C corporation? If you do, understand that there are no tax advantages (or disadvantages) to forming an LLC. Setting up an LLC won’t affect the taxes you pay. Single-owner LLCs are taxed just like sole proprietorships while multiple-owner LLCs are taxed similar to partnerships.


Still, forming an LLC could make you a candidate for additional state taxes. This holds true in certain states like California where LLCs are subject to franchise taxes aside from the usual income taxes.


The C corporation is the standard corporation while the S corporation differs only in that it has a special tax status with the Internal Revenue Service (IRS). The latter is named after Subchapter S of the Internal Revenue Code. In to get ant S corporation status, Form 2553 must be filed with the IRS in addition to S corporation guidelines.


Unlike other business structures, C corporations are taxable entities meaning that the corporation itself is taxed on its income (compared to other entities that just pass the income to the owner). If you don’t plan to distribute all profits from your business, you could benefit from forming a C corporation and using “income splitting.” This is where the business’s income is divided so that one part is taxable to the corporation and the other is taxable to the corporation’s owner.



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