Starting a home business: LLC or S-Corp?

tdfuller · #1 05-05-07, 07:23 PM

Greetings to All. I am hoping anybody who has started a business by themselves, run from a home office, could shed light: which is better: to start as a LLC or S-corp?

I am in NC, and the state filing fees are the same: $125, but the annual fee to file an annual report is ten times the cost for an LLC: $20 for a corp, and $200 for an LLC, so this is one advantage for the S-corp.

I have almost no overhead, I already have a computer, printer, scanner, fax, home office, email, etc. I will become a registered investment advisor (RIA). There will be no other employees, at least for next several years.

I have done extensive reading in regards to starting a business as an S-Corp or LLC, and as an RIA. I do not expect to have much income the first year or two; if I made more than $50K a year the first year or two I will be happy.

I understand an LLC is much easier to maintain, and as a single member(owner) LLC, I am a non-entity for taxes: they are passed through to my individual income taxes, but I have to pay self-employment taxes on the full amount earned.

On the s-corp side, I understand that I have to file quarterly tax reports, but, I can limit what is subject to self-employment tax by taking income as dividends.

So, as a new, solo owned and oeprated from a home office, small business owner, expecting to earn less than $100,000 at least for the first few years, which is better, an LLC or s-corp?

Thank you,
Todd Fuller
tfuller52@aol.com

Brandon · #2 05-06-07, 12:34 AM

I also really interested in this topic. If anyone has any experience in registering their business name with s-corp or LLC, please please here.

Thanks
Rbadnon

jtr55 · #3 05-07-07, 04:06 PM

Aside from the obvious benefit of an LLC* being much more simple for reporting purposes it could depend on whether you are forming a service business or a if you are actually selling some form of goods (have inventory). If you are selling a physical good and carrying inventory then it will be much easier for you to take out money in dividends and avoid the SE tax with an S-Corp.

However, if you are a service only business then the IRS has begun to crack down on S-Corp owners who take out dividends rather then paying the themselves a salary (and paying the full FICA tax) or paying the SE tax.

In other words, if you have inventory or some type of physical good that you are selling then it is easier to say that the profit of the business is because of your products and not because of your personal services (if its because of your personal services then you cannot escape paying the full FICA tax - either as employee/employee or as SE tax).

Either way, be sure and compare different self employed health insurance options and enjoy the self employed health insurance deduction on the front of your 1040 if you qualify.

*Keep in mind that LLC's are regulated at the state level so be sure and speak with someone familiar with the laws in your state.