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Pros and cons of having an LLC taxed as an S Corp

On Behalf of | Feb 8, 2023 | Business Law |

When you launch an Oregon business, you have options when it comes to how you incorporate it. Different business structures offer different benefits and drawbacks, and many people in your shoes find themselves wavering back and forth between establishing a limited liability company or establishing an S Corp.

Per Business News Daily, LLCs and S Corps have different tax implications and management structures. In some cases, your business might end up being both an LLC and an S Corp at the same time. It may, too, depending on circumstances, benefit you to have your LLC taxed as an S Corp Here are some of the advantages and disadvantages of doing so.

Advantages of having an LLC taxed as an S Corp

There are several reasons you may want to consider having your LLC taxed as an S Corp. When you do so, your business then pays both your salary and its payroll taxes. With a traditional LLC setup, you need to pay self-employment taxes relative to your business’s gross income. When you have your LLC taxed as an S Corp, any surplus earnings undergo distribution to shareholders in the form of dividends. The dividends are subject to a lower tax rate than traditional business income, which saves money.

Disadvantages of having an LLC taxed as an S Corp

There are also several drawbacks associated with having an LLC taxed as an S Corp. There are limitations associated with doing so when it comes to the number of shareholders your business may have. Those shareholders, too, face certain restrictions when it comes to health insurance, among other areas.

Whether it makes sense to tax your LLC as an S Corp depends on several variables, among them how much money you expect it take in and what benefits it offers employees.