A limited liability company (LLC) is easier to establish and has fewer regulatory requirements than other corporations. LLCs allow for personal liability protection.
An S corporation (S-Corp) is treated as a pass-through entity for federal income tax purposes. Income, as well as tax credits, deductions, and losses, are passed through to the individuals, rather than at the corporate level. Incorporating as an S-Corp may burden some small businesses with extra costs and drawbacks.
To start an S-Corp, fill out the articles of incorporation form with all your company’s information and file Form 2553 through the IRS.
S-Corps can choose to pass income through to their shareholders for federal tax purposes. Shareholders then report the income on their personal tax returns and pay taxes at their personal rate, thus avoiding double taxation. If you meet the requirements set by the IRS and file Form 2553, your LLC can be elected as an S-Corp.
How much money should I make before starting an S corp?
Is S corp cheaper than LLC?