Power Washing and Roof Cleaning Forum

At the desk of my Enrolled Agent/Tax Pro right now trying to glean the wisdom of my new Regular "C" corporation.   He spEAks tax!  

Good question.   I'll put it in simple terms:

(1) Single-member LLC (SMLLC) is useless ... a disregarded entity by the IRS ... treated the same as any other sole proprietorship ... a waste of time and money ... also generates Self-employment tax (so a great deal for the IRS), IMHO!   They (SMLLCs) are subject to receipt of required IRS Forms 1099-MISC from business customers and/or vendors.

(2) Multi-member LLC (MMLLC) protects the investors in the firm, but not so much for the owners.   Was originally set up to protect investors in a business often built over a toxic waste dump site (like country cross roads in the 1940s and 1950s where there was a gas station on almost every corner and they tended to drop used oil, degreasers, worn out tires, etc. into the ground as land fill).   Site surveys were taken to see the level of contamination base level and the buildings were built and financed by the lenders on the condition that if the site surveys later proved the level of contamination was higher and a lawsuit occurred because of the fact, the only money the investor could lose in the deal was those funds invested into the particular site (they would not lose other property in their names if a lawsuit was filed and lost against them or the MMLLC ... in a way a kind of "insurance against contamination-related lawsuits."   Earnings are passed through the MMLLC and may generate self-employment taxes on those MMLLC members who materially participate in the operation(s) of the business firm.

The MMLLCs is also subject to receipt of required IRS Forms 1099-MISC from business customers and/or vendors.  

In recent years, the courts in different states treated the SMLLC and the MMLLC much the same, until a federal court differentiated the SMLLC from the MMLLC and allowed the government to sue the owners of the firm but not the investors.    Research it yourself on Google ... or at www.ask.com ... and also see the facts and not the fiction at IRS website www.irs.gov   MMLLCs are IRS audited at the same ratio as partnerships and S corporations (ratio estimate is 4 in 100) and most such audits are errors in reported compensation subject to SE or payroll taxes. 

(3) Regular Chapter C corporation is a stand-alone legal and tax entity that pays its' own taxes and is itself liable for wrongdoing (that is why they usually have liability insurance on their property, up to and including their vehicles).    Most C corporations are not subject to receiving IRS 1099-MISC forms and it is possible that a portion of their net earnings are passed on to their investors via direct payment or report on a 1099-DIV but are not subject to SE taxes.   Plus they have literally hundreds of deductible from gross income expenditures, up to and including "fringe benefits" to employees, officers and to shareholders who are also employees or officers.   That list can include pension plans, dependent care payments via Section 125 flex plans, medical care and reimbursement for medical care, plus tuition payments for employees, etc., that are all deductible from corporate profits but not taxable to the employees.

If your C corporation firm grosses under $5 million per year, your chances of audit are at or near 1 in 400 (that is very slim).   Another point or two (and there are indeed hundreds more) is that it can have almost any legal or tax entity as a shareholder, and it can have more than one business enterprise functioning as a subdivision of the parent firm.    It also enjoys the benefit of being able to issue various types of shares in the corporation (i.e.: common shares = voting rights; preferred shares = first "dibs" on dividends authorized to be paid to shareholders), which makes raising capital for operations and investment much easier as well.

I could go on, but you probably got most of the picture by now.   Unless one is buying real estate or something else subject to the benefits of long-term capital gains (then and only then would I consider a MMLLC or an S corporation), I highly recommend always look into the Regular C corporation first.   The threat of "double taxation" compared to the available fringe benefits deductions of the "C" corporation is essentially a non-starter or a pile of bull excrement offered to owner-operators that have been mis- or ill-informed by their tax professional. 

Respectfully submitted,

Thomas Avery Blair, Enrolled Agent

www.tomblairea.com