Ask a Business Expert

A: Whether to form a business as an LLC or S corporation usually depends on the nature of the business and who the owners are. Tax–wise, you usually come out about the same, since both are "pass–through entities" that pass business income and losses through to the owners. The chief differences:

• Members of LLCs can include in their basis the business' share of liabilities, allowing owners to deduct more losses (something that typically is important for businesses that own realty).
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• LLC members who work for the business generally pay self–employment tax on their share of LLC income, while S corporation shareholders and their corporations only pay FICA on salary actually paid to the shareholders.

Talk to a tax advisor about your proposed business before making a decision.