Florida LLC vs FL Corporation

To start a Florida LLC, you file Articles of Incorporation with the Department of State.

Pros

• Fewer formalities: When you form an LLC, you won’t have to adhere to the strict meeting requirements and other formalities typical of a Florida corporation.
• Pass-through taxation: By default, a limited liability company (LLC) is pass-through entity when it comes to federal taxes, so you’ll pay taxes on your LLC income as either a sole proprietor (if you’re a single-member LLC) or a partnership (if you’re a multi-member LLC). This is the preferred method for paying taxes for many small business owners.However, you’ll also have the option to be taxed in other ways if you so choose (see the section on S-corporations below).

Cons

• Self-employment taxes: If you’re paying taxes on your LLC income as an individual, expect high self-employment taxes.
• Fewer re-investment opportunities: If your goal is to keep most of your profits in your business to help your business grow, that can be a problem if you’re getting taxed on your getting taxed directly on your LLC income.

To incorporate in Florida, you file Articles of Incorporation with the Department of State.

Pros

• Re-investment: the corporate tax structure allows you to invest profit back into the company, a function that used strategically can lower your tax burden.
• Legal precedent: there is far more law regarding corporations than LLCs, which makes it far easier to understand exactly what your business can (and can’t) legally do.
• Benefits: corporations can offer an array of benefits in order to retain talented employees, including stock options, and these benefits are tax deductible.

Cons

• Double-taxation: corporations pay an entity tax, and shareholders are taxed on the dividends they receive.
• Formal requirements: corporations are intricately structured and face an array of reporting and record keeping requirements that can be cumbersome and costly.

LLC vs Corporation is not the only consideration. If you are looking to compare Florida business entities to discover which Florida entity is right for you, you may have heard about the S-Corp.

An S-Corp is not actually a different business structure like an LLC or a Corporation. It is a tax designation. An LLC can be as an S-Corp by the IRS, and so can a Corporation. In either case, the company must submit paperwork to the IRS requesting the tax designation.

An S-Corp has a slightly different tax structure: as a shareholder of an S-Corp, you can draw a salary from the company and collect dividends. Self-employment tax is paid on the salary, but the dividends are taxed at the lower, standard income tax rate (self-employment taxes are higher because you are paying for Social Security and Medicare both as the employee and the employer). This can save you considerable money if managed properly.

To learn more about filing for an S-corp designation, you can go to the IRS website.