I have often gotten the question:  I’m deciding between an LLC and an S-Corp for my business, which do you recommend?

This free legal information is made available courtesy of Counsel to Creativity.

My answer is both.  I recommend that your business is both (assuming that your business revenue is at the point where you gain tax benefits).

It’s easy to get confused when the terms “S-Corp” and “LLC” are being thrown around without much (or any!) clear explanation of the relationship between an S-Corp and an LLC.  That’s right—relationship between.  It’s not that your business is either an LLC or it’s an S-Corp.  It’s that they are both choices for you to make.

I have answered this question in talks and have had to restate the answer 3 times for the audience to really get it—so bear with me, it takes a minute to wrap your mind around.  Flag this post and reread it as needed.  (You may want to come back to it after talking with your accountant or tax preparer to make sure you’re squaring up all the information.)

Here’s how  it works:  An LLC is a legal designation.  An S-Corp is a tax designation.

When you form a business, you always have two choices about the entity you choice: one choice is the type of legal entity; the other choice is how that entity is taxed.

So, when you’re thinking about this—

Step 1: What legal entity are you going to form?  Your choices for a business that is its own legal entity are LLC or Corporation.

Step 2:  How is your business electing to be taxed?  You have two tax choices for each legal entity.   An LLC can be taxed as a sole proprietor (on your personal return) or as an S-Corp.  A Corporation can be taxed as an S-Corp or a C-Corp.

That is the difference:  An LLC is a legal entity for your business. An S-Corp is a tax status for your business.

Go ahead and share with me in the comments your biggest aha! about an LLC and an S-Corp.

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And if this post helped you—or you just simply liked it—please like it or tweet it.  You’re sure to help out another creative entrepreneur.

flower_icon_04Looking to change your business to better suit your life? Rebecca Prien also provides business coaching and business model design services through Ompreneur | The Yoga of Entrepreneurship.