Corp Vs LLC…more complex scenario - Posted by Sheik
Posted by Sheik on April 08, 1999 at 08:22:11:
I am, of course, trying to figure which of the above is best for me…could do with some help. I have Bronchicks Corp course but not the LLC one.
The consensus here is that a C corp is best for flips (short term gain) and an LLC is best for holding. I am questioning whether this is actually so…at least for my state (NY).
We all know that a corp is an excellent entity if the investor wishes to reinvest profits (which most of us will opt for). The investor will only take a 15% hit on net profits. Also a corp has other fringe benefits, such as, health insurace, retirement plan, as well as other perks.
BUT… here in NY, a corp has to pay franchise tax of 9% of net income or a minimum of $325 per year. That minimum has to be paid whether the corp makes a profit or not.
Given that fact, it seems that the bottom line is that the corp will have to pay 15%+9% = 24% tax on net profits up to $50K. That’s only 4% lower than the 28% the investor would have to pay if he/she had an LLC which would be simpler to maintain.
Granted, the LLC may not come with all the fringe benefits that a corp has. But wait. Here in NY, an LLC owner can opt for his/her LLC to be treated as a corp for tax purposes by filing a particular form with the IRS, and as such, can get all the benefits that a corp usually gets. By doing this, the LLC will not only get all the health insurace, retirement benefits, etc., that a corp usually gets but will also pay tax at the corp’s 15% rate. I am not sure about whether the LLC in this scenario will also have to pay the 9% franchise tax. I would guess that this would be true.
Given This fact, would it not be better to form an LLC (simpler) and then decide (year to year) whether we want to be taxed as a corp vs LLC??
This way we get the benefits of a corp without the complications.
Whew!! I sure hope this makes sense!