I'm in the process of taking my sole proprietor powder coat business and forming an S-Corp or LLC. I'm having a hard time getting a straight answer as to the pros and cons of both.

Anybody have any real life experience with either?

 

I found it to fit my circumstances great. It allows you to break the tax load down to individuals rather than as a whole. That throws the number lower and the percentage of taxes owed reduced dramatically. My taxes went from a high 5 figure number to a high 4 figure number. That's a ton of money I didn't pay Uncle Sam. As I recall, it does not relieve you 100% from the liability of the company. You do need to hold monthly meetings and keep a charter, minutes, etc, just like a big corporation....at least that's what our CPA had us do. We made a dinner evening out of it and had the company foot the bill. I never saw a down side to it and wished I had done it sooner.

 

The question really comes down to , "How small is the Business?".
If you are a sole proprietor, and it is a small family biz, it would probably be in your best interest to stay that way. If you incorporate, you then have to pay worker's comp and other insurances on yourself and other employees.
But if you are a larger business, say 5 to 50 employees, it would be in your best interest to file for and LLC. That way your liability is limited in case of an accident. As a sole proprietor, someone could sue you for your home and any other possessions you may have. As a sub chapter "S" all of that is limited, because the business is a separate entity from your personal assets.
it requires more of your bottom line profit to operate as a corporation, so you would have to raise your gross income to remain at the same net.

 

Thanx for the responses. Its very small. Myself and my partner. We have a small 1200 square foot shop. What Im concerned about is, the liability falling on my personal assets if something was to happen. We do have times that we install parts on vehicles and I just dont want to lose my home if an accident happens..

 

An S Corp is actually a corporation and has to funtion as such except for tax purposes. All income and expense flows to the stock owners similar to a partnership with some exceptions, on form 1120S. An LLC is a parnership that has limited liability to protect the partners and files a Partnership 1065. Since you are already a partnership apparently, I would think it would be better to do an LLC and stay with that form of business. The corporate structure will mean making some changes and acting like a corporation.

 

by your respose id go with llc if i were you. That way if someone sues they cant come after your personal assets just your business.