Florida S-Corp vs. LLC: Making the Right Choice for Your Business
An important step in any successful business is making it an official, legally recognized entity. There are a number of types of Florida businesses, including S-Corporations, which are technically not legal business entities, but rather, an elected tax status that essentially lets the IRS know to tax your business as a partnership. The best kind of business for you depends on a number of factors, such as the organization and nature of your business, the amount of liability you are comfortable with, and possible tax benefits and drawbacks.
Two of the most popular kinds of Florida businesses are S-Corporations (S-Corps) and Limited Liability Companies (LLC). We will go into some more detail about each of these below so that you can get a sense of what would be the best fit for you and your business. If you would like personalized feedback on how to form a legally recognized business, or on what kind of business will be most advantageous to you, feel free to schedule a free consultation with the SG Law Firm.
Benefits of Forming a Florida Corporation
The primary benefit to forming any kind of corporation is that it will limit the amount of personal liability to which the owners are exposed. If you are doing business without a separate legal entity to house your business, your personal assets can be sought in any lawsuit against the business. Forming a corporation–either an LLC or an S-Corp–will limit liability to the assets of the actual business (provided you keep your personal and business assets separate in the running of the business, as well).
Additionally, either type of corporation will potentially limit the tax exposure of the owners. Without the protection of a corporation, owners can end up paying both personal and corporate taxes. Another benefit that is often overlooked, is that incorporating your business makes the dividing and transfer of ownership much easier, which can really set your business up for success in the long-term.
Finally, another benefit of forming a Florida corporation, regardless of the type, is that it will allow you to deduct expenses related to the business prior to being taxed on the profits. Pre-tax expense deductions can include things like travel, phone, internet, and office rent and utility bills, company car expenses, computers and office equipment, healthcare premiums for employees, advertising, gifts, and more.
S-Corp vs. LLC: Which is Right for Me?
The primary difference between LLCs and S-Corps, is that with an LLC, all profits and losses are passed through to the owner on their personal income tax return, whereas with an S-Corp, an owner can take a salary and receive dividends from the corporation’s profits before being taxed on the remainder. This means that LLC owners must pay self-employment tax on all income (less expenses), while S-Corp owners are only taxed on the profits that are left after their salary and dividends have been paid out, potentially significantly lowering their tax liability while also increasing their personal income.
Here is the twist: Because an S-Corp is an elected tax status and not a business structure, you do not actually have to choose. An LLC can file as an S-Corp. One reason an LLC may choose not to file as an S-Corp is that S-Corps are limited to having 100 shareholders, whereas LLCs can have an unlimited number of members. Additionally, S-Corps must be located in the United States, and must file with the IRS as an American corporation.
Schedule a Consultation
If you are in need of personalized legal feedback about your Florida business, schedule a free consultation with the SG Law Firm today, and find out how we can support you in taking your business to the next level.