What are the Tax Differences Between an S Corporation and an LLC?
What are the Tax Differences Between an S Corporation and an LLC?Many small businesses seem to be structured as an LLC or an S Corporation. CPA Gail Rosen was asked, “What is the difference on how these two types of entities are taxed?” Here are her responses to some frequently asked questions about taxes for these two popular business entities.Answer: Many small businesses seem to be structured as an LLC or an S Corporation. What is the difference on how these two types of entities are taxed? All businesses are taxed on their net profit (or loss) which is computed by taking sales less allowable deductible expenses. An LLC’s tax is paid on the owner’s individual tax return based on percentage of ownership in the company. If you are a 50% owner of an LLC, with $120,000 of net profit, you pay tax on 50% of that net profit($60,000) on your personal tax return. An S Corporation pays a reasonable salary to the working owner
