Discussion:S Corp or LLC

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Discussion Forum Index --> Tax Questions --> S Corp or LLC

Kmsandman (talk\|edits) said:	14 February 2006
I have a client that that is interested in buying a rental property for investment along with 3 other investors. We discussed some of the issues of forming an entity, S Corp vs. LLC. Are there specific advantages to either type of entity (S Corp vs. LLC) for this type of entity (property held for investment)?

Lois (talk\|edits) said:	14 February 2006
The LLC is easier to set up and doesn't have additional annual filings with the state like an S corp has. The LLC will have to file a partnership return with the Federal and State.

JD79 (talk\|edits) said:	14 February 2006
:Not true...an LLC could file an election to be treated as a corporation, and then file to be treated as an S-Corporation. Then you would basically be entitled to the S-Corp tax rules without having all of the state filings. (Though it would probably still make more sense to just file a 1065.)

ScottCPA (talk\|edits) said:	17 February 2006
Since SE tax is not applicable for rental property activities, might as well just stick with the LLC. No reason to need an S corp for trying to minimize SE tax.

Warren (talk|edits) said:

17 February 2006

In addition to the tax differences between the two entities, there are also some legal differences and the legal differences tend to favor the LLC. The main legal difference is that with an S corp, a shareholder can lose their shares by law suit or other personal situation and the new owner is now a shareholder that has to be dealt with as a part owner by the other shareholders. This can't (or is less likely to) happen with an LLC.

I'm not sure what additional filings that there are with an S Corp. I suppose it depends on the state. The formation of the two is very similar in my state as they both go through the Secretary of State with about the same amount of paper work and they both require state income tax returns. The S Corp requires a one page form once a year that takes about two minutes to complete but that's about it.

Albundy (talk|edits) said:

17 February 2006

You have the best of both worlds with the LLC choosing to be taxed as an S Corp. While it may not yet be contemplated, the flexibility of the LLC may be an advantage. The entity may decide to also get into other areas of business which could pose SE Tax problems if you choose to be taxed as a partnership. Your place of domicile may also be important. For example, In Louisiana we have a very regressive State Franchise Tax based on (believe it or not)Debt & Equity. Corporations are subject to it, but LLCs aren't.