Creating an LLC vs a C Corp?

Question

I (along with 3 other partners) are starting a new company as a supplement to our current full-time jobs. It will start small, but it has good growth potential, so we may actually just all quit our current jobs at some point and work for this new firm. We're trying to decide whether to form the company as an LLC or a C Corp. At some point we're going to go have to meet with an attorney and/or tax specialist to see what we want to do, but I thought I'd try and get some info first so I can more easily wrap my head around it.

My situation: I currently have a good income, and pay very low taxes due to my deductions, etc. I am concerned about how a "pass through" structure of an LLC might affect me compared to the "dividend distribution" form of getting the income from a corporation. Can anyone give me some quick general insights? Thanks!

Answer 1

If you form the LLC now any income would pass through a be taxed to the owners. Since there are 4 of you the LLC would file a partenrship return.

If you form a corporation you could elect S-corp status and the income could be paid to you as salary or it would be taxed as undistributes income on your return.

In order to have a C-corp pay dividends it would have to have income that it is taxed on and then distribute the dividends to you and have them taxed to you again.

I think it would be much better to have an attorney or CPA advise you now rather than later.

You can convert an LLC to a corporation tax free. If you want to go from a corporate form to an LLC there could be an income tax.