Let me say this straight away, if anyone ever tells you that you should “form an S-corp” or that their business is an “S-Corp”, or anything similar, RUN, DON’T WALK, from that person. Seriously, I hear people tell me they were told to form an S-corp, and it tells me that who gave them that advice is clueless. Let me be clear: YOU CANNOT FORM AN S-CORP! You can however, make an election to be taxed as an “S-Corp” if your entity is allowed, and you otherwise meet the “S-Corp” rules.
Here is the fundamental difference if you do not feel like reading on: (1) an LLC is a “thing” created by your state, (2) an “S-Corp” is an election telling the IRS how to treat your “thing”.
So any LLC can choose to be taxed as an “S-Corp”, but an “S-Corp” is not a thing by itself (you must first have some entity, a corporation (which you aren’t going to do), an LLC a limited partnership, etc…, then that entity can elect to be taxed as an “S-Corp”).
What’s the difference between an S Corp and an LLC?
Here’s the best analogy I can think of, because business is war! A Riot Shield. If you are an LLC without making a tax election, the shield is clear, or “invisible” to the IRS, so what does the IRS see if it looks through the shield?
–If one person, just a Schedule C filer sole proprietorship (because the IRS sees just you);
–If more than one person, a partnership (because the IRS sees through the shield and sees more than 1 person)
–”S” Election makes the shield opaque, now the IRS sees an “S Corp” standing between you and the IRS
So in any event, you have a business “shield”, it’s just a matter of what color that shield is to the IRS. Please check other blog posts for why you might want to make the “S” election.