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S corporation vs. single member LLC

August 28, 2015

This issue comes up again and again in my tax practice: why do business owners and professionals establish  S corporations when a single member LLC will suffice? Let professionals continue to set up one owner S corps. Single member LLCs offer the same legal protection but are considered “disregarded entities” for tax purposes.

An LLC is cheaper and easier to set up. Tax filing is easier. Representation in simple legal issues, like a zoning application, can be easier with an LLC.

At a minimum, operating the S Corporation raises your tax preparation fees. S corporation tax retuns are due on March 15. LLCs can file on April 15 the same as individuals. There may be some belief that S-corporations help to avoid wage taxes but that logic does not apply to most small businesses.

It seems that even in those states where an S corporation has a lower filing fee the savings would soon be eroded by higher operating costs.

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