Have a Tax Question? Ask a Tax Expert
Hi and welcome to Just Answer!1) I need to know all of the differences between S-Corporations and LLC's that choose to be taxed as S-Corps and why would anyone choose either.
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit "single member" LLCs, those having only one owner.
The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file a corporation, partnership or sole proprietorship tax return.
An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner, a "disregarded entity."
Instead of LLC - you may register a corporation. For tax purposes it will be taxed as C-corporation. But shareholders generally may choose the corporation to be taxed as S-corporation.
So LLC and corporation are legal entities, while C-corporation, S-corporation, partnership or sole proprietorship are taxing structures.
2) Then I need to know in which state is it most favorable for me to file the corporation. Some say stay here in California others say Delaware, Nevada, Wyoming, or Florida. I'm lost. The easiest way to have a business entity in the state in which you run business operations. Most states require to register foreign entities (entities that are registered outside the state) before they may legally perform business activities within the state.If you may choose any state - you may based your decision on the State Business Tax Climate Index (SBTCI) - see this publication - http://www.taxfoundation.org/files/bp60.pdf The ten best states in the Tax Foundation's 2011State Business Tax Climate Index are as follows:1. South Dakota 6. Montana2. Alaska 7. New Hampshire3. Wyoming 8. Delaware4. Nevada 9. Utah5. Florida 10. Indiana3)Lastly, will I have to charge sales tax given the description of my service? I understand that online subscriptions are not taxable due to the fact that there is no physical product being manufactured or used to deliver it, but I've also read contradicting information online. When you provide online services - there are two factors - your physical location and location of your customers. Based on these factors you determine under which jurisdiction the sale transaction is regulated. Then - you need to verify if your services are subject of sales tax or not. In most states online services are not subject of sales tax - but to be précised - regulations for specific states should be examined.