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Is Pass-Through Tax Treatment the Same for LLC’s and S Corporations?

No, not exactly. It is the same in that neither entity itself pays income taxes, passing profits through to the members/shareholders. But there is a difference that gives LLC members an advantage. While S Corporations must allocate profits in direct proportion to shareholders’ ownership, LLC’s are free to allocate profits without regard to their members’ ownership share.

In addition, LLC members have an advantage when it comes to determining the maximum amount of business losses they can report on their tax return in a year. S Corporation shareholders are limited to the “basis” of their stock, that is what they paid for the stock plus and minus adjustments during the corporation’s life, and plus personal loans to the corporation. The maximum amount of business losses LLC members can report on their tax return in a year is calculated in the same way except that they are allowed to also include their pro rata share of money borrowed by the LLC.

Of course S Corporations do have their advantages, one of which is covered in   “Can S Corporation status reduce self-employment taxes?”

In view of the complexity of tax issues, it is always wise to consult with a skilled professional tax advisor when forming a business.

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DISCLAIMER: The information provided in this site is for general information purposes only and not legal advice.
MaxFilings is not a law firm, does not offer legal advice and is not a substitute for a law firm or an attorney.
Your use of this site is at your own risk and is subject to the terms and conditions in our  full disclaimer.

MaxFilingsMaxFilings is an online incorporation service that lets you incorporate or form an LLC in just 10 minutes, or start organizing your information until you are ready. There is no charge to store incorporation information in the secure MaxFilings system, and there is never any obligation to order.

MaxFilings incorporation fees are very affordable, and an extensive library for researching your choices is available at www.maxfilings.com/incorporation-knowledge-center.

Newly incorporated businesses also have access to online promotional services such as business cards, PR, web sites, and SEO services through partner company SEO Advantage (www.seoadvantage.com) .

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© 2008 MaxFilings.com All Rights Reserved. DISCLAIMER: MaxFilings, Inc. is a service company and does not provide legal or financial advice. The information provided on this site is for general information purposes only and not legal advice. MaxFilings is not a law firm, does not offer legal advice and is not a substitute for a law firm or an attorney. Your use of this site is at your own risk and is subject to the terms and conditions in ourÊfull disclaimer found at: www.maxfilings.com/disclaimer.html