Before we dive in, let’s clear something up. When thinking about your business, you don’t have to choose between an LLC and S Corp. You can (and probably should) have both! You can organize your business as an LLC and designate it as an S-corp for tax purposes. Let us (Lettuce!) explain:
An LLC…
- Is a legal business status governed by state law
- Gives you the legal protections you want for your business, like separating your business assets and liabilities from your personal ones
An S Corp…
- Is a tax classification governed by the federal government (IRS)
- Tells the IRS how to tax your business, specifically that certain portions of your income should be taxed differently (and saving you money)
- Identifies you as both the employer and the employee, so you get to take the deductions of the employer and enjoy the benefits of being an employee
So, with your business organized as an LLC, but with S Corp tax status, you gain access to some tax-saving benefits only corporations enjoy…