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As a one-person show, should I still form an LLC? An S-Corp?

Article ID: 172
Last updated: 17 Oct, 2013
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By Jason Watson ()

This KB article has been superseded. Please see our updated articles.

Yes. Admittedly we shot down the liability protection argument. We also shot down the LLC in Nevada argument. So what’s left? Lots, actually.

An LLC will give you credibility. Vendors and banks will take you more seriously with an LLC.

An LLC can be quickly expanded to multiple owners, and make ownership transfer much easier.

An LLC (and in some cases an S-Corp) can expand your options for health insurance coverage and other benefits. This varies by the state, so more discussion is required, but it is an important consideration given our current benefits landscape.

There are Revenue Procedures allowing an LLC to retro-actively be converted to an S-Corp (Sub-S Election) which allows you to avoid some of the self-employment taxes. However, and this is a big however, without the LLC in place you cannot retro-actively create an LLC AND be an S-Corp. For example, you start a business on January 1. On July 1 you create an LLC. On March 1 the following year you discover that you are going to pay a ton in self-employment taxes. Unfortunately, you can only go back to July 1 with the S-Corp status and not the inception date of January 1. Make sense?

Read are full tax article on S-Corps at-

www.watsoncpagroup.com/SubS.pdf

So, get the LLC in place now so your options are not so cramped. Just understand that an LLC is not all the hype.

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Also read
item Should I convert my LLC to an S-Corp (Sub-S Election)?
item Liability Protection Fallacy of an LLC
item Can I call my 1099 ‘other income’ which avoids employment taxes?

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