Forming the Side-Business: Tax Benefits – LLC, S-Corp, or C-Corp?

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Forming the Side-Business: Tax Benefits – LLC, S-Corp, or C-Corp?

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October 28, 2011

It is always recommended that you get liability protection if you are engaging in trade or business for the purposes of making money. And the tax law is surprisingly generous when it comes to classifying a "hobby" as a business, as long as you meet certain requirements.

Having a side business has the potential to create substantial tax savings that you can garner against your normal, ordinary income. Whether you form an LLC, S-Corp, or C-Corp largely depends on the amount of money you intend to make, how much you're willing to spend each year on keeping up the company, how much documentation you want to do each year for the company, and certainly the state you live in. Your long-term intentions can also come into play, though most of the time switching from one type of company to another is a relatively simple proposition.

  1. LLC's are most often the most simple and least expensive of the three. They require small fees to setup and even smaller fees to keep up each year. There is very little documentation required to comply with law and to receive the liability protection and tax benefits enjoyed by the LLC.
  2. S-Corporations are almost always more expensive and time consuming to maintain. Like C-Corporations, they need to have annual meetings and keep written minutes of such meetings, among other legal requirements. They can have some tax benefits over LLCs, but usually those benefits do not come into play until the owner(s) begin to make a substantial income.
  3. C-Corporations are the most complex and expensive of the three. Also they subject the owner(s) to double taxation. The corporation is taxed, and then the owners are taxed on the corporations' after-tax profits. C-Corporations are most often used by professionals such as attorneys or physicians, or by businesses looking to raise capital while maintaining smooth and frequent transfers of ownership of the business (e.g. shares of stock).

This is a brief summary, but if you are engaging in a side-business or a full-time business, or considering doing so, you need to explore setting up an LLC or corporation for both liability protection and tax benefits. You may be very surprised at how many tax dollars you could have been saving if you had done it sooner!

Visit www.oXYGenFinancial.net to request a consultation with the leading personal financial advice experts for Generation X and Y in the country.

Written by: Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS® - Co-CEO and Founder oXYGen Financial, Inc

Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS. NFPAS does not provide tax or legal advice. This site is published for residents of the United States only. Registered Representatives and Investment Advisor Representatives of NFP Advisor Services, LLC (NFPAS) may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact NFPAS Compliance Department at 512-697-6000. PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. NFP Advisor Services, LLC makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is NFP Advisor Services, LLC liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

This site is published for residents of the United States only. Registered Representatives of Kestra IS and Investment Advisor Representatives of Kestra AS may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact Kestra IS Compliance Department at 737-443-7101.

PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. Kestra IS and Kestra AS makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is Kestra IS and Kestra AS liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.