Limited Liability Company
We believe that our Missouri incorporation service is the most complete and cost effective offered by anyone in the St Louis area.
Our Basic Incorporation service is only $143.00! The same service that other firms charge as much as $750.00 for. The basic Limited Liability Company setup is only $145.00. Both of these include the state filing fee.
How are we able to do it?
We view our incorporation service as a marketing tool rather than as a profit center. As you can see in our web site, our professional services include a wide variety of legal, accounting, tax and consulting services.
Please do not confuse cost with quality. Once you see the quality and cost effectiveness of our work, we believe that you will become a long-term and loyal client which is the greatest asset that any business can have.
If you have any questions, please do not hesitate to call me.
Corporation vs. Limited Liability Company
The following is a brief outline of the reasons to choose one form of business over another. It is not meant to be all inclusive and if you have any questions you should consult an attorney or accountant before making your final decision.
All of these entities offer limited liability protection. The differences are in the tax treatment.
A standard corporation files its own income tax return (Form 1120) and pays its own taxes. Not very common for small businesses.
Subchapter S Corporation
A Sub S corporation files its own income tax return (Form 1120S) but the income or loss is reported on the shareholder’s individual tax returns and the shareholders pay the tax on their share of the taxable income or take the benefit of their share of any losses.
Limited Liability Company with multiple owners
A Limited Liability Company with more than one owner files its own tax return (Form 1065) but the income or loss is reported on the partner’s individual tax returns and they pay the tax on their share of the taxable income or take the benefit of their share of any losses.
The major difference between a Sub S corporation and a Limited Liability Company is in the area of payroll taxes. Owners of Sub S corporations are treated as employees and owners of LLCs are treated as partners. There can be some significant payroll tax savings with a Sub S corporation if the company’s profits start to get larger. These savings do not apply if the LLC’s income is from rental real estate. See the next page for an example of these tax savings.
Limited Liability Company with one owner
A Limited Liability Company with one owner (husband/wife can be treated as one owner) does not need to file its own tax return. Rather, the income is reported on the owner’s personal income tax return ( Form 1040 Schedule C) and they pay the tax on the taxable income of the business or take the benefit of any losses.
The major difference between a Sub S corporation and a Limited Liability Company is in the area of payroll taxes. Owners of Sub S corporations are treated as employees and owners of LLCs are treated as partners or proprietors. There can be significant payroll tax savings with a Sub S corporation if the company’s profits start to get larger. These savings do not apply if the LLC’s income is from rental real estate. See the attached analysis.
Regular Corporation: Consider using a regular corporation for businesses that will require you to retain large amounts of profit in the corporation to purchase inventory or machinery, such as large wholesalers, retailers of manufacturers. Very few family owned corporations use this status.
Limited Liability Company: Use an LLC in the following situations (1) Rental real estate or limited real estate investing, or (2) One owner business that will not have employees and will not have net income in excess of approximately $20,000, or (3) You have another job and your W-2 wages are at least $90,000.00.
Subchapter S Corporations: Consider using a Sub S corporation for a multiple owner business or a one owner business that will have employees or a large net income.
One final note: It is very easy to convert an LLC into a corporation for tax purposes. It is much more difficult to convert a corporation into an LLC.
Tax Savings of
Subchapter “S” Corp vs. Limited Liability Company LLC
The tax saving are not from income taxes. Federal and state income taxes are essentially the same for both S Corporations and LLCs.
The tax savings for a Subchapter S Corporation are from payroll taxes.
All earnings (except rental income from real estate) from an LLC are subject to self-employment tax. Self-employment taxes are simply payroll taxes (social security & medicare) for the self-employed. Self-employment tax for 2016 is 15.3% of net income up to approximately $120,000 plus 2.9% on all net income.
In contrast, only part of the earnings from a Subchapter S corporation are subject to payroll taxes.
The payroll tax savings increase until business profits reach approximately $120,000. At that point the tax savings start to decrease. At earnings of $240,000 the tax savings are at their lowest and then start to increase again.
Examples (Based on 2016 payroll tax rates)
|Earnings||Total Payroll Taxes||Sub S|
|from Business||Sub S||LLC||Savings|
Note: Self-employment taxes (and the benefits of a Subchapter S corporation) are significantly reduced if the owner of the LLC has another job where he is already earning over or close to $120,000.00. If you have W-2 or self employed earnings from other sources please consult with us before making your entity decision.
I.R.S. Audit Warning
For All Missouri
Subchapter S Corporations
The Internal Revenue Service has chosen St. Louis as one of several test areas to audit all Subchapter S corporations that pay profit distributions without also paying adequate officer’s compensation.
It is common knowledge that many unskilled tax advisors have told their clients that they can avoid paying payroll taxes (social security & medicare) by paying themselves Subchapter S profit distributions or dividends rather than wages.
This advise has always been in direct violation of I.R.S. rulings.
If your corporation has been paying you profit distributions without also paying you a salary, you can expect an I.R.S. notice within the next few years.
If you have not already received a notice, please contact us immediately so that we can take remedial action to lessen the taxes, penalties and interest that you will owe.
If you have already received a notice, you should immediately contact your tax advisor and ask about their policy of reimbursing clients for penalties and interest when they give incorrect tax advice.
The Missouri Division of Employment Security (Unemployment) does even more wage audits than the I.R.S. They are also looking for corporations that do not pay salaries to their officers. And, if they catch you, they will turn you into the I.R.S.
If you have any questions, please feel free to call me.