S Corporation Advantages for Florida LLCs

S Corporation Advantages for Florida LLCs

Benefits of S Corporation Election for Florida LLCs

An S Corporation’s advantage is that it has a tax structure similar to C Corporations with liability protection similar to LLCs. Too few business owners take advantage of this powerful tool. While it won’t be best for everyone, here are some ways that you might stand to gain with this hybrid structure.

What You Get With an LLC

LLCs are a business entity favored by many business owners in Florida for its flexibility with taxes and planning day-to-day operations. Unless another tax structure is elected, LLCs are classified as a “pass-through entity.” This means that the business’s profits and losses are “passed through” to the owners (also known as members). Each member reports these profits and losses on their individual federal tax return, avoiding double taxation.

LLCs are distinguished by their liability protections. Because the business and its member(s) are legally separate, personal liability is usually limited to the individual’s investment in the LLC. This means that if your business goes under, you don’t have to worry about losing your own personal assets.

Additionally, LLCs require less paperwork and have more relaxed record keeping requirements. Members handle their earning distributions at their own discretion; there is no need for it to based upon the member’s capital contributions.

S Corporation Advantages for LLCs

An S Corporation is a business that elects to pass its corporate income, losses, deductions, and credits through to its shareholders (owners) for federal taxes. They avoid double taxation by reporting the gains and losses on the shareholders’ individual tax returns. An overview of forming an S Corporation can be found here.

Not every corporation qualifies to be an S Corporation. First off, it cannot be a corporation from outside of the U.S. Some insurance companies, international sales corporations, and financial institutions are also ineligible. There can be no more than one hundred shareholders, and the shareholders can only be certain trusts, individuals, or estates. However, all family members, as well as spouses, only count as one shareholder each. S Corporations are also limited to a single stock class. This class can contain both voting and non-voting stock.

S Corporations have some tax planning unavailable to your run-of-the-mill LLC. The FICA tax for Social Security and Medicare (also known as self-employment taxes) only applies to wages paid to owner-employees. The remainder of the net earnings passes through as dividend income.

How LLC and S Corp Benefits Work Together for You

An LLC can make a special election for S Corporation status by filing IRS Form 2553. This hybrid entity is still legally an LLC and keeps all of the structural benefits. As far as taxes are concerned, however, your business is an S-Corporation.

Essentially, this means that your business has more opportunities to avoid double taxation while also reducing taxes and liability. It’s a structure that allows you the easy management afforded by an LLC while still reaping the benefits of pass-through taxation. However, please note that this is not a one-size-fits-all plan that will be good for every business.

Looking to start a business or grow your current business? Contact FL Patel Law today by visiting our website or calling (727) 279-5037.

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FL Patel Law PLLC is a boutique business law firm dedicated to entrepreneurs and companies.

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