I recommend opening an LLC in almost all cases. The costs are very minimal, and you gain liability protection. Additionally, operating as an LLC is a more formal means of operating and adds clout to your business in the eyes of banks, lenders, and other outside parties. Please consult an attorney regarding the legal benefits of opening an LLC.

The decision is ultimately yours, but I can educate you on the pros and cons of each. An LLC is a simpler entity, but some clients prefer the additional structure an S-Corp can provide.

S-Corps generally save on federal taxes; however, S-Corps are at a tax disadvantage for Tennessee taxes. I generally find that any tax savings at the federal level are negated by the additional taxes Tennessee will charge.

To pay themselves, LLC owners simply transfer funds from their business bank account to their personal bank account. LLC owners must also make estimated tax payments in 4 quarterly payments to cover self-employment taxes & income tax. By contrast, S-Corp owners must pay themselves a reasonable salary via a payroll service. Although the payroll process in an extra step, it can prevent larger tax bills because taxes are automatically withheld from the paycheck you pay yourself.

It depends.

If you open an LLC and you are the only owner, all the income of the business is reported on your personal tax return, and no additional return is necessary.

If you open an LLC with more than one owner, you must file a separate partnership tax return (called form 1065) which will split the profit between you & your business partners. You will not owe any tax on the partnership return, but you will receive a form K-1 which you will use to prepare your personal tax return. The K-1 will increase or decrease your personal taxes depending on the business’s profit or loss.

If you operate as an S-Corp, you must file a separate tax return (called Form 1120S), even if you are the only owner. But just like a partnership, you will not owe any taxes on the S-Corp return. Instead, you will receive a form K-1 to report on your personal tax return.

All paperwork is submitted digitally via the Tennessee Secretary of State’s website. As soon as I click submit, your LLC is opened and available for use. There is no wait time.

EIN stands for employer identification number. An EIN is essentially a social security number for your business and allows you to attribute profit to your business rather than to you personally. Although the name suggests otherwise, you do not need to employ anyone to obtain an EIN. In fact, I recommend that all clients obtain an EIN, even if they are sole proprietors. An EIN often required by banks in order to open a bank account. Additionally, you will use your EIN in reporting taxes.

Although LLCs and S-Corps provide liability protection, I cannot provide specifics of the legal benefits of LLCs or S-Corps. Please consult an attorney.