3 Tax Similarities Between S Corp vs LLC. . --  Kiritsis Law Firm Group 212 922 0005

Apr 27, 2021

Generally, LLCs and S Corps are very similar for federal tax purposes.  Here is how:

1. Pass-through tax treatment. Generally, both LLCs, as well as, S Corps, would receive pass-through tax treatment, and often would result in almost identical tax bill for its owners. However, it should be noted, that LLCs largely have bestowed upon them pass through tax treatment by default, but have the option to elect to be taxed as C Corps. Whereas, S Corps receive their pass through tax treatment, by meeting certain strict requirements, and are always vulnerable to lose their S Corp election, upon failing to meet a number of formalities.

2. Avoid double taxation (no federal corporate income taxes). One of the main advantages, that both LLCs and S Corps possess, is that they are typically, exempt from taxation at the entity level, which is a pitfall that often plagues C Corps, which are subject to double taxation.

3. Cash method for tax reporting is the norm. Both LLCs and S Corps are typically not required to use the accrual or other complex (i.e. hybrid) accounting methodologies for tax reporting purposes.

 

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