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S Corp Versus LLC
By Jason Watson, CPA
Posted Wednesday, October 18, 2023
The next pay per view! UFC #58,723, The Apology… S Corp Versus LLC… Sunday Sunday Sunday!
Since this book is about LLCs and S Corps and we’ve already discussed a ton of stuff, we put together a small table to illustrate the S Corp vs LLC contrasts and comparisons; sounds like the start of a college essay. Yuck. Here we go-
|Section 199A Deduction Ability||Max*||Max|
|Business Tax Deductions||Max||Max|
|Tax Return||1040 / 1065||1120S|
Quiz time! What’s the difference between an LLC and an S Corp? None, except the reduction of self-employment taxes and the tax return form number. That’s it! Ok, perhaps that is not entirely true.
The little asterisk above is referencing a phaseout of the Section 199A qualified business income deduction where a secondary test is used to determine (or limit) the deduction. Basically, it is 50% of the business income (profit) or 20% of the wages paid, whichever is lower. Since it is frowned upon for a non-S Corp’d LLC to pay wages to its owner(s), at times an S Corp election is required to “open up” the Section 199A deduction.
There are two additional burdens when exploring the LLC vs S Corp comparison.
One is tax return preparation, and subsequent fee. A Form 1120S is a business entity tax return and WCG’s fee is typically $1,500 to $1,800. The second burden is payroll processing; as an S corporation you must pay the shareholders a reasonable salary as employees. This too adds a financial burden as well as a series of administrative “touches.” But! As you will see, the savings can be significant. For a small increase in chores, you could easily save thousands of dollars. Yes, plural.
Taxpayer's Comprehensive Guide to LLCs and S Corps 2023-2024 Edition
This KB article is an excerpt from our 400+ page book (some picture pages, but no scatch and sniff) which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information at-