LLC-C Question

[reistrade]

Dear Diane,

What is the drawback, or what is the difference between owning an LLC-C vs a Corp?

Thanx

[Diane Kennedy]

There might be a cost difference by state (Megan can speak better to that issue) but the main difference between an LLC-C and a C Corp is asset protection.

A C Corp, set up and run correctly, protects you against business judgements. But if you are personally sued and the bad guy prevails, your stock can be seized. So, the C Corp isn't protected from you.

An LLC protects both ways. You are protected from the business and the business is protected from you.

This is a simplistic discussion. There are a lot more details that need to be covered such as what kind of business you have, whether you are a professional and how many owners the LLC has.

[reistrade]

My question is regarding tax treatment. For example under an LLC-C is the first $50,000 of income taxed at the corporate rate of 15%? And is the LLC-C allowed to pay medical bills like in a Corp?

[Megan Hughes]

Hi reistrade,

Yes! Once the LLC has elected C Corporation tax status, it is eligible to do all of the things a C Corporation can do, and participate in all of the tax benefits and options the C Corp has. However, legally the LLC retains the same protections it had before.

I love the LLC structure. The only time I don't like it is in states that charge more to maintain LLCs ... and even then I think the asset protection piece is often worth the extra filing or maintenance fees.

[kirkaldy]

I've been reading a ton about S-Corporations. I currently have a single member LLC as a disregarded entity. Im thinking of making the election to be taxed as an S-Corp, except my LLC is a residential rental unit, in which I have a profit of $1300 a year after depreciation, expeneses and everything else. Just curious if it's worth paying myself a salary and dealing with the paperwork to become an S-Corp for $1300 in profit.

I also want to be careful not to show a loss 3 years in a row, otherwise I can't claim deductions for a residential rental property.

Thanks,

Bill

[Diane Kennedy]

Bill,

I think you might have business losses and real estate losses confused here. If you have a rental, then your limitation is based on income.

Up to $100K adjusted gross income and you can deduct up to $25,000 of losses. Over $150K, you can't deduct anything. Between the two, the deductible amount phases out.

Generally we like LLCs to hold real estate. The S Corp and C Corp elections are used for businesses.