Tax Differences Between LLCs and Corporations

If you are thinking of forming a new business, an important question to consider is how you want that business to be structured.  In Indiana, there are many types of business entities, including sole proprietorships, partnerships, limited partnerships, limited liability companies (LLCs), and corporations.  Most businesses these days are structured as LLCs or corporations.  There are both similarities and differences between the two business types, however, the most important difference between the two entities is how income is taxed.

As the head of a corporation, the business owner can be taxed twice.  First, the business is taxed on its profits.  Next, the business owner is pays personal income taxes on his or her income generated from the business.  In a sense, the business owner is subject to “double taxation”, first when the company is taxed and then again when he or she is personally taxed.  The LLC, on the other hand, receives the benefit of “pass-through taxation,” meaning that profits and losses of the business pass through the business and only the business owners report the taxes on their personal income taxes.  In this scenario, the LLC is not taxed as an entity for its profits and losses.  Another option for an individual who is considering setting up a business is to structure the business as an S-Corporation, which is similar to a corporation, however it has the “pass-through taxation” benefits of an LLC.  There are other differences among the various business entities, as each has certain advantages and disadvantages over other entity types.  Additionally, some business entities have different criteria that you must meet in order to form your business as that type of entity.

Julie Camden of Camden & Meridew, P.C. is experienced in business entity formation and can help you decide which business structure is best suited for your needs. If you would like to explore setting up a new business, call 317-770-0000 or complete our online contact form today.

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