I am retiring next month. I have been asked to do some consulting for my old firm and others. A friend has suggested I form a limited liability company or an S corporation. While I don’t expect there to be any liability issues in my line of work, I’m wondering about the tax advantages of either entity? —Bill McIver, Cumming, Ga.
There generally aren’t any tax advantages to forming a single-member limited liability company, or LLC, versus an S corporation, says John Evans, a tax partner who specializes in small businesses at BDO Seidman in New York. They’re both considered income pass-through entities, which means that income or losses from the business gets reported on your individual return. So, if an LLC or an S corporation earned $100, the company’s owner would report the full $100 on his or her individual return — creating a tax liability at the individual level.
However, operating as an LLC may be easier, says Evans. “Operating a corporation requires more formalities,” he says. Among other things, an S corporation’s owners are required to file a separate return, Form 1120s, elect a board of directors and host an annual board meeting.
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