ABOUT 
O'HARA BUSINESS STRATEGIES!

O'Hara Business Strategies' mission is "to help clients strategically succeed". Strategically simply means keeping a focus on the key issues and trends facing your company, as well as the long-term success of your organization. Our website is https://oharabiz.com .

O'Hara Business Strategies' offers HUNDREDS OF POWERFUL, PROVEN AND PROPRIETARY STRATEGIES, SYSTEMS, AND SOLUTIONS to empower your business to become MORE profitable and "worthy of being franchised", as well as becoming the place to fulfill your dreams!

The late Stephen R. Covey, in his classic book, "The 7 Habits of Highly Effective People" captured the strategic mindset with his "Begin with the End in Mind" and "Put First Things First" habits. 

Daniel D. O'Hara and his network of associated professionals can help you make the right choices for your organization. Choices that sidestep the pitfalls and allow you to stride confidently forward. Choices that enhance the stability of your company and allow predictable progress toward your goals.

So, please check out this blog (just scroll down) for short articles on business topics & trends, informative internet links, classic quotes, recommended books, and information about O'Hara Business Strategies--the services offered, Daniel O'Hara's background, and more.

LLC or S Corporation? Which is best for your business?

Perhaps, the two most popular for legal entities for small businesses today are the Limited Liability Company (LLC) and the S Corporation. They offer liability protection and an increased image of professionalism over a sole proprietorship without the double taxation and extra burdens of a C Corporation. 

The LLC offers liability protection, as well as simplicity, along with professionalism. The S Corporation is simpler than a C Corporation!

The LLC is generally less costly to maintain and doesn't necessarily require monthly payroll, tax preparation and other professional fees that are often lower than for a S Corporation.

However, the S Corporation really shines in one key respect...........it can save substantially on self-employment taxes compared to an LLC. How does this happen?

     Example: Acme Dog Biscuit Company's owner, Stan, takes $100,000 out of his business. He takes a $40,000 salary and the remaining $60,000 as the profit from the business. In a proprietorship or an LLC the whole $100,000 would be subject to 15.3% self-employment tax. In the S Corp, Stan would pay Social Security as wages and the S Corporation would pay the other half. However, as long as Stan is paid a reasonable salary ($40,000 in this case), the remaining $60,000 would "pass-through" to Stan as being taxed as ordinary income only, not subject to self-employment tax. Effectively, the savings in self-employment taxes would be over $9000 for an S Corp. This needs to be balanced against possibly higher accounting, legal and tax prep fees for the S Corp over a LLC.

It needs to be emphasized that Stan must be paid a reasonable salary since this can be a commonly audited area by the IRS if the S Corporation pays less than a reasonable amount. 

However, it is possible to re-characterize an LLC as a tax entity, taxed as an S Corporation, with some planning and petitioning the IRS to change entities and filing a Form 2553 to elect S Corporation status. It can all come to timing, which the LLC offers! It offers the flexibility to remain taxed as a sole proprietorship or partnership as long as the member's income is relatively low.

There are some capital-raising and other considerations to be considered, as well. The S Corp can work well for a company that may expect to benefit from decreased self-employment taxes in the first years of its operation!

One final caveat is that, if a business does distribute most of its income, as salaries to the owner and has little net income from the business itself, the benefits of reduced self-employment taxes is minimal. Therefore, all other issues remaining equal, the LLC can be a more attractive entity choice.

For small businesses that have a significant portion of their income as net income from the business and less from salaries paid to the owner, the S Corporation can offer significant savings in self-employment taxes.