difference between c s and llc corporations in colorado [Expert Review]

Last updated : Sept 28, 2022

What is the difference between LLC and S Corp in Colorado?

Unlike the default LLC business structure, in which owners must pay self-employment tax on all of the company's profits, owners of S corps are considered employees of the business and only have to pay self-employment tax on a salary they receive.

Should my LLC be S Corp or C Corp?

The LLC is a low-maintenance legal entity that's best for a simple business. An S corporation is a tax status created so that business owners can save money on taxes. A C corporation is a more complicated legal entity that's best for businesses looking to keep profits in the business.

Is an S Corp better than an LLC?

If there will be multiple people involved in running the company, an S Corp would be better than an LLC since there would be oversight via the board of directors. Also, members can be employees, and an S corp allows the members to receive cash dividends from company profits, which can be a great employee perk.

What are three main differences between an LLC and a C corporation?

To choose the entity that best fits your business, you need to consider the main differences between the two entities, including taxation, management, annual maintenance requirements, and differences in ownership.

Should I elect S-Corp status for my LLC?

Although being taxed like an S corporation is probably chosen the least often by small business owners, it is an option. For some LLCs and their owners, this can actually provide a tax savings, particularly if the LLC operates an active trade or business and the payroll taxes on the owner or owners is high.

Should I make my LLC an S-Corp?

Bottom Line. The S corporation is the only business tax status that lets you save on Social Security and Medicare taxes while avoiding double taxation. An LLC taxed as S corp offers benefits of a corporation while also providing flexibility on income treatment.

What are the 3 types of LLC?

• Single-member LLC for the sole-proprietorship (solo entrepreneur)
• Multi-member LLC (member-managed LLC or manager-member LLC)
• Domestic LLC and Foreign LLC.
• Series LLC.
• L3C Company (low-profit LLC)
• Anonymous LLC.
• Restricted LLC.
• PLLC and LLC.

What are the main differences between an LLC and an S corporation?

LLCs can have an unlimited number of members; S corps can have no more than 100 shareholders (owners). Non-U.S. citizens/residents can be members of LLCs; S corps may not have non-U.S. citizens/residents as shareholders. S corporations cannot be owned by corporations, LLCs, partnerships or many trusts.

Which is better for small business C corp or S Corp?

C corporations can have foreign owners, unlimited shareholders, and multiple classes of stock. Winner: C corps. S corps are suited for smaller, domestic businesses that want to treat all owners the same way. C corps give companies unlimited growth potential and flexible options for ownership and profit distribution.

Do S corps pay quarterly taxes?

S corporation owners who have to pay state income tax and unemployment tax usually can file these payments quarterly as they do with their federal taxes. Some states even use tax return worksheets that are similar to the IRS Form 941.

Why would you choose a corporation over an LLC?

Forming an LLC or a corporation will allow you to take advantage of limited personal liability for business obligations. LLCs are favored by small, owner-managed businesses that want flexibility without a lot of corporate formality. Corporations are a good choice for a business that plans to seek outside investment.

What are the disadvantages of having an S corporation?

• Formation and ongoing expenses.
• Tax qualification obligations.
• Calendar year.
• Stock ownership restrictions.
• Closer IRS scrutiny.
• Less flexibility in allocating income and loss.
• Taxable fringe benefits.

Why is LLC better than C Corp?

An LLC is more appropriate for business owners whose biggest concern is having flexibility in their business management. Limited liability companies are also easier to start and to run than corporations: LLCs give liability protection to their members.

When should I change from C Corp to LLC?

In general, a corporate conversion may be desirable in the following situations: The corporation holds assets that have not appreciated or have depreciated: In such situations, the FMV of the property distributed does not exceed the basis of the transferred assets, and the corporation does not recognize gain.

Is C Corp same as LLC?

Unlike an LLC or corporation, a C-corp is not a type of business entity. C-corp is a tax classification that is available to both corporations and LLCs, though it is more typically used by corporations.

Why would you choose an S corporation?

One major advantage of an S corporation is that it provides owners limited liability protection, regardless of its tax status. Limited liability protection means that the owners' personal assets are shielded from the claims of business creditors—whether the claims arise from contracts or litigation.

When should I switch to an S corp?

When it comes to accounting, the easiest time to switch is January 1st. Forming your S Corp at the beginning of the tax year makes record keeping and tax preparation easier because you'll need to track your S Corp finances separately from your sole proprietor finances.

What is S corp tax rate?

What is the tax rate for S corporations? The annual tax for S corporations is the greater of 1.5% of the corporation's net income or $800. Note: As of January 1, 2000, newly incorporated or qualified corporations are exempt from the annual minimum franchise tax for their first year of business.

How do I change my LLC to an S corp in Colorado?

File Form 2553 to Turn Business into an S Corporation You can do this by either going directly to the IRS website or by using our fast and convenient EIN filing services. Next, you need to file Form 2553, Election by a Small Business Corporation, with the IRS to get S corp status.

What happens when you convert an LLC to an S corp?

An LLC can also elect to be taxed as an S corporation, even if it only has one owner. Electing S corp. taxation doesn't convert your business structure from an LLC to a corporation. It simply changes the way you file and pay taxes and handle owner income.

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are you considering if your business should be a llc or a c corporation do you know the difference between the two well stay tuned because this video will take a deep dive into the differences and similarities between an llc and a c corporation and also i'll be discussing which might be the best option for your business i'm crystal cpa and co-founder of life accounting where we like to teach and empower small business owners to take complete control of their financial picture today i will be discussing the key differences and similarities between an llc and a c corporation especially the tax differences and what you could expect to pay in taxes with each type i'll also explain the compliance requirements of each and how you can decide which is best for your small business now to be fully transparent here i'm not a lawyer and by no means am i giving you legal or financial advice but i am a licensed cpa and i will break down the gist of the legal jargon and especially focus on the tax items so you can avoid paying too much in taxes and as we all know or should know how you decide to structure your business significantly impacts the amount of taxes you pay after all taxes are your biggest expense all of which and more i'm going to explain to you in this video make sure to subscribe to our channel if you're new we publish videos almost every single day and i'm confident that one some or all of them will help you navigate accounting and tax in your life all right let's dive in one of the biggest differences between an llc and a c corporation is taxation this is probably the single most important difference to understand and you should be aware of it c corporations experience double taxation double taxation means the c corporation as an entity pays taxes on its income and when you the shareholder of the c corporation takes money out in the form of the dividend or distribution you are also taxed personally so with a c corporation you are paying taxes twice on the same income did you catch that the income is first taxed through the business with corporate income taxes this income already includes the distributions or dividends that you took out of the business then it's taxed again on your personal return for any amount you took out of the business in the form of a dividend or distribution the current corporate tax rate is 21 and the federal deadline to file and pay these taxes is april 15th on form 1120 and the individual tax rate on corporate income would depend on your personal tax rate and consider all of your income from all sources on the other hand llcs only pay tax on the individual level as a default meaning the llc entity does not pay taxes directly unlike in a c-corporation situation but the income earned through the llc is passed to the owner where taxes are assessed this is called pass-through taxation most llcs are single members so those tax returns are due april 15th for multi-member llcs or s corp llcs those tax returns are due on march 15th however as an llc owner you can actually decide how you want your llc to be taxed so you can be taxed as a sole proprietor an s corporation and even a c corporation so as you can tell an llc offers you more flexibility in taxation whereas with a c corporation not so much you're going to be double taxed another difference is how llcs and c-corporations are formed there's a lot more administrative work with forming a corporation first corporations are required to have articles of incorporation which is simply a set of documents that are filed with the state to legally document the formation of the corporation second there's the corporate bylaws which are a set of rules and regulations adopted by the corporation third you have to elect a board of directors the board of directors represent the shareholders of the corporation fourth you have to hold a board meeting which is a formal meeting with the board of directors to discuss performance and other major issues in the corporation fifth you also have to hold a shareholders meeting which is a formal meeting with the shareholders of the company to vote on specific issues and review finances both board and shareholder meetings are required to occur at least once a year and details of those meetings must be kept in the meeting minutes in order to maintain corporate status sixth and finally you have to issue stock and shares in the company based on what was invested as capital in the corporation that's a lot most corporations seek the help of an attorney to form their corporation forming an llc is much simpler first you need to have your articles of organization this is a similar document to the articles of incorporation for c-corporations next you should have an operating agreement similar to the by-laws which outlines how your llc will operate it's important to note that both the operating agreement and bylaws and even the articles of incorporation and organization are legally binding documents it is very important to understand what is being included in these documents because they could come back and bind you later on the last difference i want to touch on is the ownership of each a corporation can issue shares of stocks and sell percentages of the business to its owners or shareholders these shareholders can then buy or sell their shares for more or less ownership in the company a corporation also exists in perpetuity separate from its shareholders meaning that a corporation remains in existence even when a shareholder leaves the company an llc has the freedom to distribute its ownership stake to its members without regard to a member's financial contribution to the llc for example a member of an llc may not have invested as much capital as another member however an llc's operating agreement could specify that all members receive an equal share of the profits anyway this creates more flexibility when establishing the ownership of the llc all right so we've talked a lot about the differences between an llc and a c corporation but what about the similarities well for one both llc's and c corporations offer its owners limited liability for llcs this is literally a part of its name limited liability company but what this means is the owners of the llc or corporation are not personally liable for the company's debts or liabilities so basically if someone sues your llc or corporation they cannot go after your personal assets like your house or personal funds another similarity is that llcs and corporations can both be owned by u.s and non-us individuals which is not the case for s-corporations llcs and corporations also allow you to have unlimited owners which could be helpful if you're planning on starting the next fortune 500 company which actually brings me to my next point which one is right for your business again i'm just a cpa so i can only really speak from that perspective but for most business owners llcs tend to be the better choice llcs are the definition of flexibility they give you the choice of how you want your partner's ownership percentages to be allocated not to mention you can choose how you want to be taxed so if for some rea

Thanks for your comment Tory Cavrak, have a nice day.
- Deandre Billingham, Staff Member

in this video I'm gonna explain the difference between a sole-proprietorship and I'll see and a corporation from both a legal and tax perspective my name is Navi Mirage I'm a certified public accountant and we've got a lot to cover so let's get into the video all right so no matter where you're watching this video whether it's on your various social media platforms you can always find this video on my website which is Navi Mirage CPA com a quick disclaimer before we get into the details I am NOT an attorney however I am a certified public accountant so I can speak to the tax implications of setting up these various legal entities but I have consulted with attorneys across the nation and I'm pretty sure they would agree with most of the things that I might touch on from a legal perspective but you would want to consult with your business attorney to see if they agree with what I'm saying here so as I mentioned when you form a business you are actually making two decisions you are making a legal decision and a tax is decision so let me kind of lay the foundation for this video and that will kind of make a little bit more sense so when you form a business you are going to be treated as the ways up above here from a legal perspective and then down here are the different ways you could be treated from a tax perspective all right so up here I have the different legal entity types and down below the different tax types let's talk about the colors for a second the green is going to indicate how this particular entity is taxed by default what I mean by that is you know there's no box that says hey check here to be treated this way this way from a tax perspective the blue represents how that entity type could be treated from a tax perspective and I'll get into those details here in a second now there are some less common structures that I didn't put on here and you can also have an LLC treated as a c-corp but that's not very common and this video is for your average small business owner so let's get into the details so the sole proprietorship you can form a sole proprietorship by simply walking into your bank and if your name is John Doe for example you could talk to your banker and he or she will open up an account call john doe's landscaping if you're in the landscaper and you could just go out and start mowing people's lawns if you want now I don't necessarily recommend that because that the sole proprietorship doesn't have what's called limited liability protection so if someone Sue's your you know john doe's landscaping your individual assets as john doe the individual are also now at risk okay so how is this entity treated the sole proprietorship treated from a tax perspective well its treated as a sole proprietorship but what I mean by that is you are going to complete you or your tax professional is going to complete a Schedule C and attach it to your form 1040 individual tax return what I want to help you understand is that there's no separate set of tax documents that you're completing or having your accountant complete when you form our sole proprietorship it's an additional Schedule called Schedule C that's attached to your individual tax return now let's for a brief moment talk about these entity structures on the right-hand side so I mentioned that the sole proprietorship does not provide limited liability protection these entity types may and I say me because you want to treat them as though they're separate entities so you don't want to come in commingled funds between your business and personal you want to use your entity name on all your marketing documents you might if you're an LLC have a articles of organization of course but also an operating agreement maybe you have a Board of Advisors you take meeting minutes when you have business discussions even if it's by yourself I know that sounds a little silly but yes you want to record meeting minutes and all those things will help you you know prop up and support that yes your LLC is actually different than you as an individual but let's kind of break these down one by one so here I have SM l ec LLC rather or s MP LLC this means that s M stands for single-member so you're a one-man shop if you will and how this is treated is by default is as a sole proprietorship so it's exactly the same as this entity type the sole proprietorship so you are simply adding Schedule C to your individual tax return a single-member LLC by default is taxed the exact same way a sole proprietorship all it does is give you that limited liability protection let's move on oh briefly let's touch on the P LLC so a lot of you are probably like what is this P LLC I've never heard of it P LLC stands for professional limited liability company so who should be forming a PLLC someone who holds a license with the state that they're forming the entity in most of your states across the nation support a plc so if you are a certified public accountant or an attorney or a physician or a realtor or maybe a general contractor holds a license you should be forming a professional limited liability company if it's available in your state all right moving on mmm LLC that stands for a multi-member LLC the owners of an LLC are called members now the default tax classification for a multi-member LLC is a partnership and so you would file a separate set of tax documents call its form 1065 and that's the tax return a partnership completes or your account would complete for you there's no sort of I mentioned this a moment ago there's no check the box when you're forming your multi-member LLC for you to know that hey it's going to get treated this way from a tax perspective this is just information that your accountant should advising you on and let's touch on the c-corporation a lot of you might have heard this this is your you know Amazon's of the world or C corporations but if you are a professional just like I mentioned here the P LLC if you're a professional and forming a C corporation you're a corporation is actually called a professional association so again your attorney your realtor let me touch on the Realtors for a second many Realtors have some you know top producers in their office who have pas but you know the corporations have been around and existence much longer than the LLC's have and that's why they may be doing so it may not be right for you you might prematurely create a PA if you're if you don't have a conversation with your attorney or CPA so how is the corporation treated for tax purposes well it's subject to double taxation which means that the profits from the corporation are going to pay tax when they form file file form 1120 and then the shareholders the owners of a C corporation our cars are called shareholders and they will then again pay tax when they receive distributions from the C corporation or the professional association so how can these entities be treated as S corporation so quick point I want to make is you can't go to your state and say I want to form an S corporation these are the entity types that you would form with your state from the single-member LLC on this way I mentioned that the

Thanks babkowy7 your participation is very much appreciated
- Deandre Billingham

About the author

Deandre Billingham

I've studied nuclear physics at Maine College of Art in Portland and I am an expert in biomedical engineering. I usually feel pessimistic. My previous job was high school guidance counselor I held this position for 28 years, I love talking about drama and jigsaw puzzles. Huge fan of Gordon B. Hinckley I practice archery and collect clothing and accessories.