| Should you operate your small business as a Limited | | | | This result already exists for most small business |
| Liability Company (LLC) or as an S corporation? Ever | | | | limited liability companies. Since these are usually taxed |
| since LLCs were permitted a few years ago, many | | | | as partnerships, Social Security and Medicare taxes |
| new businesses have been told that it as a preferred | | | | kick in at full force.Another reason you may prefer |
| choice. However, if you own a small business, you will | | | | using an S corporation is that it could work better as a |
| probably find that setting yourself up as an S | | | | way of protecting yourself from personal liability. In |
| corporation is the way to go. | | | | many cases this protection is the underlying reason for |
| Here's why: | | | | choosing either the S corporation or the limited liability |
| First, this choice will probably save you Social Security | | | | structure. In our litigious society, there is a huge benefit |
| and Medicare taxes. In your S corporation, you can | | | | in being able to isolate your personal assets from |
| pay yourself a salary and issue yourself a W-2 at the | | | | those in your business. |
| end of the year. Only the amount on your W-2 will be | | | | The difference is that the case law surrounding limited |
| subject to these taxes. Other profits, even if they are | | | | liability companies is very undeveloped. Each LLC is |
| distributed, remain exempt. Since there is no limit on the | | | | generally created by its own unique document. The |
| amount of earnings that are subject to Medicare tax | | | | chances are, in a serious lawsuit, that these organizing |
| and the ceiling on earnings subject to Social Security | | | | documents and other similar paperwork could be |
| taxes keeps rising, this is frequently the primary motive | | | | flawed or challenged. |
| for setting up an S corporation. | | | | In contrast, corporations including S corporations are |
| However, one must not be too greedy when avoiding | | | | fairly easy to set up and operate.It is less likely that |
| Social Security and Medicare taxes. The IRS is | | | | your corporate structure will be successfully |
| increasingly coming down on those S corporations | | | | attacked.Finally, unlike virtually any other type of |
| which underpay their owner. As the pendulum swings | | | | business, limited liability companies operating in California |
| to raising taxes again, this is one benefit that could be | | | | are subject to a tax on their gross receipts as well as |
| deemed a loophole. In fact, a proposal, which is gaining | | | | being subject to a minimum tax. Paying taxes even |
| favor, would subject all profits from professionals who | | | | when you are losing money can be especially |
| operate within S corporations to the taxes. | | | | distressing. |