Which is Better for Your Online Business-LLC or S-Corp?

Which is Better for Your Online Business-LLC or S-Corp?

If you’re new to owning an online business, you probably have many questions–including how to become legally legit and make the most out of your work. But first of all, good for you for starting! You are well on your way to making your business dreams come true. And I can totally help you get there. One of the things you need to know is which is better for your online business-LLC or S-Corp?

 

 

But first, what is an S-Corporation? It’s a tax designation or a tax election. It’s basically a switch you can turn on or off with the IRS, but it’s not an actual entity. On the other hand, an actual business entity would be an LLC or a C-corporation. So, you actually have to have an LLC business entity before you can become an S-corporation. Check out my post HERE to show you how to set up your LLC!

 

One thing to keep in mind as you are forming your online business is that it is separate from you. You are now a legal person for your business and as this legal person you are making money, paying bills, entering into contracts, etc. 

 

And this is great news! Whenever issues arise–as Vanilla Ice teaches us–the problem is with the business and not with you personally. This means as you take the steps to make your business legally legit, you will get that asset protection you want and need in your business. 

 

 

Disclaimer

What kind of attorney would I be if this didn’t have a disclaimer? I’m a licensed attorney and I practice in Utah and Idaho. I am not your attorney. This is not official legal advice. If you have any questions, please consult with a legal professional in your jurisdiction.

 

Which is Better for Your Online Business-LLC or S-Corp?

You will need to set up your online business as an LLC before ever considering an S-Corp. But as your business starts to grow, along with your income, it may be time to start considering switching things up. Here are 4 steps to take to help you know if it’s time to switch your online business from an LLC to an S-Corp.

 

S-Corp Step #1: Look at your numbers.

If you have an accountant that you talk to regularly, chat with him/her and check your numbers together. If you don’t have an accountant then it’s important for you to really stay on top of those numbers. Especially if you had a really great launch or year growing your business.

 

For example, if you’re making somewhere around $50k a year, then it could be beneficial for you to switch to an S-Corp designation. And when I say $50k, I mean you make this much AFTER paying all of your business expenses for the year. This dollar amount is reliant on what’s still left in the bank after you paid off everything. 

 

If you fall into this category, you definitely want to look into switching to an S-Corp specifically for tax purposes. When you file under an LLC everything gets taxed all in one bucket. So, if you’re making a nice salary every year and you still filed as an LLC, you are most likely overpaying taxes. When you switch to an S-Corp, you put yourself on salary and now you are basically your #1 employee. 

 

S-Corp Step #2: File a form with the IRS.

The form you file with the IRS will set up an S-Corp for you. There are companies out there who can do this for you, but it’s also totally doable on your own. The IRS form you want to fill out is Form 2553. It’s three pages, but you usually only need to fill out the first two unless you are doing other more complicated shareholder things. 

 

Once the form is filled out, I recommend sending this to the IRS via certified mail with a read receipt. This means you will need to go to the post office and tell them you want to send this form as certified mail with a confirmation receipt. Take a picture of this and put it in your business files just in case it was ever questioned or challenged that you actually did become an S-corp. 

 

 

S-Corp Step #3: Set up payroll.

Now that you told the IRS that you as the owner are also going to be an employee of your business, you need to put yourself on a payroll. And this means you have to decide what a reasonable salary is for yourself and then set that up. If setting this up is something you want more support in, I know some really amazing accountants who work with creatives that would love to help you. Check them out HERE.

 

If you’re setting up payroll, that means you need to start using software payment processing. The one that I find to be the easiest and slickest is Gusto. It is a modern company that is set up to make payroll easy for non-accountant-type people like you and me who want to make sure that we can pay ourselves and other people as our teams grow.

 

I use Gusto for my business, so I’m walking the walk here when I tell you how much I love them. When you set up your account, you’ll need to put in your EIN and your business address, along with some other forms that are needed to get that payroll set up. 

 

S-Corp Step #4: Keep your S-Corp business money separate.

This is the rule for all of our business entities. As soon as we start to put that business owner hat on, we need to own that in every aspect of our business. So, never let your business money commingle with your personal money. Your assets should each have their own lane. This is the best way to keep things organized and check all of your boxes, especially during tax season.

 

 

Which is Better for Your Online Business-LLC or S-Corp?

I hope these legal business tips helped answer some questions! And mainly, which is better for your online business-LLC or S-Corp? I know there is a lot of hubbub online and a lot of people trying to get your eyeballs so they can sell some stuff. So I want to make sure you’re getting good information about your business from someone you can trust. 

 

Keep showing up as that confident business owner and lean into the newness of it all! And for any of your legal questions, I’m your girl. Make sure to follow me on Instagram @brittanyratelle and subscribe to my YouTube channel HERE so you can get the exact advice you need to make your online business legally legit. 

 

Ready to get your business legally legit?

 

Download my free legally legit workbook HERE – your free guide to getting your business set up, protected, and ready for growth. When you sign up you’ll also get access to my newsletter with tips and tricks for YOUR growing creative business.

 

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Interested in working with Brittany for one-on-one legal services? Sign up for a 15-min phone consult at brittanyratelle.com/services.

 

Want an attorney-drafted, industry-tested legal template for your business? Take a free quiz and find out exactly what you need for your creative business at creativecontracts.co.

 

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