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Elect to have it taxed as an S corporation. You can form an LLC for legal reasons, and elect to have a taxed as an S Corp. Generally speaking for a small business, an S corp tax election is a stronger election or a more advantageous election for the business owner. Because you’re able to take not just a salary, but also distributions from the company, the IRS requires you to take a reasonable wage. But it does also allow you to take distributions, which means that there is a savings on some of the payroll taxes with a distribution amount that is taken. At the same time, yor legal structure is still that of an LLC.
SPEAKER: Male3
Lawyers like setting up a company as a limited liability company LLC, because it’s a very flexible entity, you can make a tax designation for an LLC of either being the Lefault entity of the partnership, or an S corp or C Corp. So the legal entity still stays as an LLC. And then the tax entity can be one of the three. The reason why you would choose one or over another, typically is because of taxes, because you can save money on taxes if you are electing to be an S corp if you’re making money. But sometimes people want to be a partnership. Because in an S corp, you only have one class of stock. In a partnership, you have different classes of the interest. And in a C Corp, you have different classes of stock. So one of the drawbacks of an S corp is you have one class of stock, that means everyone is treated the same. But in a partnership and C Corp. You can have different classes of stock, which stock or interest and they are treated differently. But typically every everyone defaults back to what is the best thing from a tax standpoint. And for most companies, that would be an escort. But if you’re starting to get funding for your company, meaning outside sources of funding, then they most likely want to to be a C Corp. Also, there are tax advantages. If you do start off as a C Corp, you can have something called a qualified small business stock. And then when you go to sell the company, you then could have up to $10 million of pre tax gain. So there are advantages for each of them. But most small businesses tend to be s corpse, the letter S and then Corp. But there are reasons that you would be a partnership and pay more taxes. And there are reasons to be a C Corp and then pay corporate taxes, which presently are 21% and 8.84%. In California, you need to consult with an accountant to figure out what is best for you in the end, so they can make the correct choice. Because even though the default company might be an S Corp. It may not be the right choice for you in the end.