Is an LLC S-Corporation Right for Your Business?

“Is an LLC right for me?”

People know a Limited Liability Company (LLC) is good but they don’t know why. An LLC is a state administered and regulated business entity; it is not a tax entity. If formed correctly it provides a business owner with liability protection. By forming an LLC the business owner is essentially telling its patrons to “Buy our goods or services at your own risk.” In case of a law suit, claims begin and end at the businesses level, the most a suite will garner an individual is the amount that can be claimed against the business’s assets, and insurance. If formed & maintained correctly the LLC will protect the business owner’s assets from litigation. Rogue Tax Professionals are not lawyers, so please consult a legal professional if the reason you are considering forming an LLC is to protect your personal assets from litigation.

The legal separation and protection of the LLC is just the tip of the iceberg. LLCs are easy to form, the rules are easy to comply to, and there is the potential for incredible tax savings (please provide a link to that conversation).

“My business only has one owner can I form an LLC?”

Traditionally the LLC entity was thought to be for partners in a partnerships only, however it has become a very popular business entity for businesses with only one owner.

“Can I form an LLC myself?”

Forming an LLC is very easy. Below is a link to the Oregon Secretary of States that will take you directly to the forms where you can organize an LLC. Be careful to not complete the “Articles of Incorporation,” this is a very different entity. At the very least you will want to apply for an Employer Identification Number with the IRS.

Finally, use the Articles of Organization and the IRS letter with your EIN number to open a new business bank account.
Congratulations! You have essentially organized yourself a business, and are off to a good start.
Rogue Tax Professionals are not lawyers if you are forming an LLC to protect your personal assets from litigation consult a legal professional.

“As an LLC do I need Bylaws or an Operating Agreement?”

Limited Liability companies do not require Operating Agreements like Corporations require Bylaws. In the state of Oregon LLCs without Operating Agreements default to state law. Although Operating Agreements are not required, putting one together is not a bad idea, especially if there are two or more owners. Depending on the complexity of your situation or your willingness to put out effort, you can put one together yourself by relying on the abundant resources available on the internet, or you can have a lawyer help.

“If my business is an LLC do I save on taxes?”

If you have not elected to be taxed as an S Corporation by filing the form 2553 you will be considered by the IRS as a Disregarded Entity or Sole Proprietor if your business is an Single Member LLC (on owner), or a Partnership if your business has more than one owner. As an LLC you have the option to be taxed as an S Corporation from the time the Articles of Organization were filed with the state. However you must submit the form 2553 with the IRS and pay the owners/officers a “Reasonable Wage” (please provide link to the video).

“If my business is an LLC do I need to have a separate business bank account?”

It is not legally required for you to have a separate business bank account. However, if you find yourself in a legal dispute the plaintiff’s lawyer may try to dispute the legitimacy of the LLC, and will likely use the lack of separate business bank account as a means to make the LLC illegitimate.

If the LLC is taxed as a Disregarded Entity (Sole Proprietorship) and no as an S Corporation than it does not matter, because the IRS does not see the LLC as separate from the owners. However, if the LLC is being taxed as an S Corporation then the IRS will consider the S Corporation election illegitimate.

To make a long story short if you are self-employed do yourself a favor and ALWAYS have a separate business bank account.

Rogue Tax Professionals are not lawyers if you are forming an LLC to protect your personal assets from litigation consult a legal professional.

“I have organized an LLC, and have elected to be taxed as an S Corporation. Is my business an LLC or an S Corporation?”

For all intents and purposes your organization is an LLC. For example when you go to the bank to open a new business bank account they might ask you what your business entity is, in this case you are an LLC; be careful not to tell them you are a S Corporation, you will confuse them immensely. For completing a w-9 or if someone asks what is your “Tax” entity then your business is considered an S Corporation.

“I am an LLC and I want to be taxed as and S Corporation do I have to close my LLC?”

Absolutely not, this is one error we encounter frequently. Small businesses that have been LLCs simply need to elect to be taxed as an S Corporation, and then comply with the IRS rules and requirements. We rarely recommend that small businesses organize their business as Corporations with the state; there usually is no reason to. Corporations have more requirements to comply with and can be more expensive, than LLCs. As an LLC being taxed as an S Corporation the business owner gets the same tax benefits as they would having organized their business as a Corporation.