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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
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Experience:  Over 20 Years experience
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Please reply (with guidance) the pros and cons of structuring

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Please reply (with guidance) the pros and cons of structuring (organizing) as an LLC vs. LLC/S-corp for a New Florida Business (NFB) given the NFB will gross $80K income on a NJ contract, when the owner (Florida resident) of NFB will work as an employee of the NFB and earn less than $10K and the NFB's 1099 contractor (California resident) will be paid $51K of the NFB's $80K gross income? Will the NFB need to file a DBA (doing business as) to work in NJ?
Submitted: 4 years ago.
Category: Tax
Expert:  R. Klein, EA replied 4 years ago.

There are only 2 main reasons to create an entity: Tax protection and Legal Protection.

Sometimes these are in conflict, sometimes they work out the same.

 

Which is more important to you?

 

As for an LLC or LLC/S-Corp, that's the same thing. An LLC can only be formed at the state level. The state also allows for the creation of a pure corporation (Not S or C, just a corporation).

 

If you create a corporation, you must elect how you want it taxed for federal tax purposes. You can choose an S-Corp (pass through for taxes to individual shareholders) or C-Corp (an entity that pays its own corporation tax and passes the remainder to the shareholders as dividends)

 

If you choose an LLC, there is no such designation for federal tax, so you must pick how you want to be taxed. If it is a one-owner LLC, it defaults to a "disregarded entity", or it is treated like a sole-proprietor for tax (you file Schedule C with your 1040). If it has more than one owner, then it is taxed as a partnership.

 

Whether you have one member or more, you can ELECT to be treated as an S-Corp. There are advantages and disadvantages. What are the features that are important for you? Sell the business in the future and pay low taxes? Pay the low tax today and sell it and pay lots of tax? Get the biggest tax-free medical benefits? Get the largest retirement contributions? There's a hundred things that may be important, so you need to tell your advisors what you need from your entity.

 

 

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