Tuesday, February 24, 2009

Incorporate or Form LLC?

When you start a new business, you will need to decide what type of business entity you will select. If you are a sole proprietor, you can file as such or you could form a single-member Limited Liability Company. Another choice would be to form a corporation and whether to operate as a C-Corporation or an S-Corporation.

Here is a link comparing the various type entities I obtained from a local law firm.


One exception I would take is the statement that LLC members do not pay self-employment tax. Amounts paid as "guaranteed payments" are generally considered to be subject to self-employment tax and such payments should be the equivalent of a 'reasonable salary.' The LLC member's share of profits in excess of his 'guaranteed payment' would not be subject to self-employment tax.

It is highly likely that a greater amount of such income may later be subjected to self-employment tax.

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