Video: Comparison Between Business Entity Types

In this lesson, Nick Palazzolo, CPA, takes the complexity out of comparing LLCs and S-Corps, which can be a bit of a maze for those not familiar with the details of business entities. With a dash of humor and plenty of visual aids like charts and memorization guides, Nick dives into the nitty-gritty of ownership, management, and taxation differences between these popular entities. He ensures these topics are digestible by discussing the number of owners allowed, management structures, and the pivotal topic of self-employment taxes, peppering in practical tips like the IRS's stance on 'reasonable salary.' Wrapping things up, Nick leads a walkthrough on how to choose the best business structure in various scenarios, emphasizing the practical application of this knowledge and preparing for corresponding exam questions on entity selection. Buckle up for an insightful and pragmatic discussion on business entities that goes beyond textbook definitions and connects directly with real-world decisions and exam prep.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Now, if you're like me, you may have seen LLCs and S-corps and been thinking to yourself, wow, these seem like the two best entity types. And yeah, they are incredibly beneficial for someone looking to create some entities that have limited liability as well as limiting that taxable income, getting only taxed once. They're both popular entity business types, several key differences. Let's walk through and compare them. And do I compare certain entities a little more than others? Yeah. And that's generally because maybe they're more similar to each other and you want to know the differences, especially we do have a lot of graphics, a lot of great memorization charts to run through. We'll have a memorization guide, lots of comparisons between the entity types, but specifically we're looking at LLCs and S-corps here. Now, ownership LLCs can have an unlimited number of owners known as members. These can be individuals, corporations, or other entities. So again, other entities important there. S-corps, on the other hand, can only have up to a hundred shareholders, which definitely memorize that, who must be individuals, estates, or certain types of trusts. So you see, you can have other corporations as shareholders of S-corps. A little more restrictions, again, kind of balancing out the entity types. It's kind of like the IRS is a nerfing or buffing various entity types throughout. Management, LLCs can be managed by the members themselves or by a designated manager who can be a member or an outside party. S-corps are managed by a board of directors who are elected by the shareholders. So just more in line with the corporation overall. Now, LLCs are generally taxed as partnerships by default, meaning that profits and losses are passed through to the members and are only taxed

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