What is the difference between an LLC and an S Corp?

One of the most important things I’ve learned in dealing with many Amazon clients and communicating with many of them at some of the conferences that I’ve spoken at is that a lot of the sellers don’t know what some of the major differences from being an LLC and an S Corp are. One of the big differences that an LLC and an S Corp have between each other is self-employment tax. The results of your operations on an LLC and S Corporation flow through to your personal tax return. That means that you pay the taxes on the income from those entities on your personal taxes.

With an LLC, you have to pay an extra fifteen percent on that money for self-employment tax. On an S-Corporation, you don’t have to pay that fifteen percent. One may ask, “well why would I want to pay an extra fifty percent on money I earned through my business?” Well, part of that fifteen percent goes towards your contributions to Social Security. So, if you want to collect Social Security if it’s around by the time you reach age 65, you will want to pay self-employment tax. If it’s not important to you or you have other plans on what you want to do with retirement, then maybe saving that fifteen percent makes sense to you.

It is important that no matter which choice you make, you hire an experienced accountant to handle your finances and help you through your taxes. It is crucial to ensure that you file the correct taxes, you consult with an attorney that has experience with both LLC’s and S Corps.

If you are an Amazon seller and require the assistance of an experienced Certified Public Accountant, please contact Ebiz Accounting for an initial consultation.