Hello XXXXXXXXXX,

From a tax standpoint, the S Corporation definitely affords you the best tax advantage, and here is why.

As a two member LLC, if you choose to be taxed as a partnership, all of the partnership earnings are subject to tax in the year earned, and all of the earnings are considered to be from self-employment. That means that you and your brother pay not only federal and state income taxes on the profits, but you also pay the full share of social security and medicare taxes. Those two taxes combined is 15.3% of your net income.

If you choose to be taxed as a C Corporation, then you have an issue with double taxation. With a C Corporation, you and your brother could draw salaries from the company, and you could leave some of the profits in the corporation as retained earnings for capital or for future use. But those profits would still be taxed at corporate tax rates, and once you withdraw them from the corporation, they are then taxed to you again at the personal level as dividends.

If you choose the S Corporation status, you must pay taxes on the full amount of your earnings each year, but you can split those earnings by classifying some of them as salary and some as dividends. The IRS requires that as a shareholder of an S Corporation, you must pay yourself a reasonable salary. A reasonable salary would be the same amount of pay that someone else in your profession is being paid for the equivalent amount of hours you devote to the business. The salary that you pay yourself will be subject to federal and state income taxes as well as the social security and medicare taxes discussed earlier. But, everything you earn that is over and above your salaries, you may then withdraw those amounts as dividends, which are not subject to the social security and medicare taxes. So you automatically save 15.3% in tax on any profits that you can declare as dividends.

The S Corporation by far offers the best tax advantage and seems to be the #1 choice for people in this day setting up a new business for that very reason.

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Thank you.

Hello XXXXXXXXXX,

I understand your questions but unfortunately the type of information you are looking for goes way beyond the scope of this website.

This forum strictly answers sepcific questions related to tax issues, and is not set up to actually provide you services such as would be provided by a financial advisor.

The type of service you are looking for will likely cost you several hundred dollars or more, and cannot be obtained here due to the limited fees and scope of our services.