LLC vs S-Corp | What Entrepreneurs Need to Know in Alaska

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LLC vs S-Corp in Alaska

When starting a small business in the Alaska, one of the most important decisions you’ll make is choosing the right legal structure. Two popular options for small businesses are electing for S Corporation (S-Corp) or forming an LLC in Alaska. Both offer certain advantages and drawbacks, making it crucial to understand their differences and determine the best fit for your business. 

If you want to know more about LLC vs. S-Corporation, which is better and suitable for the business you will form, you should consider a few things. Before we get through this article, you should understand LLC vs. S-Corporation in Alaska. 

Webinarcare Editorial Team will help you define and understand the difference, and you must be guided by all the factors gathered in this article.

LLC Vs. S-Corporation in Alaska

LLC vs. S-Corporation: Definition

A limited liability company is a type of business structure that guards against the impact of business liabilities on your personal assets. However, while not a typical business structure, the S Corp is a tax status you can register with the IRS. Unlike an LLC, an S-Corp does not offer personal asset protection. The two are explained in detail here:

What is an LLC in Alaska?

A legal corporate organization that protects personal assets is a limited liability company (LLC). With this setup, the LLC member or owner can protect their personal assets if their company faces financial difficulties or becomes the subject of legal action. In some unique circumstances, the opposing party may pursue your personal assets if your firm is sued in court. When you are held personally accountable for the company’s debt, this is called “piercing the corporate veil.”

By creating an LLC in your state, you can take advantage of the pass-through tax benefit, which means that your personal income will be used to determine your income tax obligations rather than the revenue generated by your firm. 

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What is an S-Corp in Alaska?

Unlike a limited liability company (LLC) or other business structures, Alaska S-Corporation is not a type of corporate entity. It’s a tax classification that, though in various ways for corporations and LLCs, might lead to considerable financial savings. S-Corporations are similar to LLCs, except that the Internal Revenue Service recognizes them as corporations for taxation purposes. 

A well-known alternative to the LLC is the S-corp. In contrast to a traditional C-corp, an S-corp is better suited for small and medium-sized firms, such as those with 100 total stockholders. 

LLC Vs. S-Corporation in Alaska

Creating a business in Alaska requires careful consideration, especially when deciding whether a state LLC or an S-Corporation is more advantageous. An LLC is a legal corporate structure, but an S-Corporation is a tax categorization which some small firms are eligible for. Forming Alaska Corporations and LLCs can elect S-Corporation taxation by filing paperwork with the Internal Revenue Service (IRS). Making an S-Corporation may be less formal than establishing an LLC, and it typically offers less security. Additionally, S-Corporation in Alaska does not offer the same safeguards that business owners seek in an LLC. When starting a business, thinking about your alternatives from a legal and tax perspective is important.

It is suggested that you speak with a legal professional before you begin setting up an LLC. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC in Alaska.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in Alaska

There is a distinction between an LLC and an S-Corporation regarding taxation. Based on the differences in Federal and State taxes, you can determine whether S-Corporation or LLC in Alaska is best for your business.

Federal Taxes 

There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in Alaska. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

  • Pass-Through Taxes: LLC and S-Corporation in Alaska are the same regarding pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners must pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in Alaska are mandated to have double taxation. It means that they must pay federal taxes at the entity level.
  • Self-Employment Taxes: Most LLC owners choose S-corporation taxation in Alaska to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes. 

Consider the following scenario: you are the sole owner of an LLC in Alaska with a $200,000 annual profit. And $150,000 is a fair wage in your area for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $200,000 profit. However, if your business is taxed as a state S-corp, you must only pay payroll taxes on the standard wage of $150,000. The remaining $50,000 will still be subject to income tax.

Alaska State Taxes

At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in Alaska, it costs $50, $100 for 2 years, which can be paid to the AK Department of CCED. Of course, before forming the whole LLC, you must pay the initial fee of $250 to the Alaska Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in Alaska have different ownership requirements that can impact your choice of business structure. Here’s a comparison of the key ownership requirements for each structure:

1. Number of Owners

Alaska LLC: An LLC can have any number of owners, called members, from starting Alaska Single Member LLC to multiple members LLC. There is no upper limit on the number of members an LLC can have.

Alaska S-Corporation: An S-Corporation is limited to a maximum of 100 shareholders (owners). This restriction can be a limiting factor for businesses that plan to have many owners or seek outside investment.

2. Type of Owners

Alaska LLC: An LLC can have various owner types, including individuals, corporations, other LLCs, trusts, and estates. Non-resident aliens can also be members of an LLC, like forming a Foreign LLC in Alaska.

Alaska S-Corporation: S-Corporations have more restrictive ownership requirements. Only U.S. citizens and resident aliens can be shareholders of an S-Corporation. Additionally, other corporations, LLCs, and certain types of trusts and estates are not eligible to be S-Corporation shareholders.

3. Classes of Ownership

Alaska LLC: An LLC offers flexibility regarding ownership classes. Members can have varying levels of management rights, profit distribution rights, and voting rights, creating different classes of membership interests.

Alaska S-Corporation: S-Corporations are limited to only one class of stock. While shareholders’ voting rights may differ, all shareholders must have equal rights to profit distribution and liquidation proceeds.

4. Profit Distribution

Alaska LLC: Profit distribution in an LLC is flexible, allowing members to allocate profits and losses in any proportion they choose. This can be outlined in the Alaska Operating Agreement.

Alaska S-Corporation: Profits and losses in an S-Corporation must be distributed to shareholders based on the percentage of shares each owns. This can be less flexible than the profit distribution options available to an LLC.

Alaska LLC offers more flexibility in ownership requirements, allowing for a greater variety of owner types, multiple classes of membership interests, and flexible profit distribution. In contrast, an S-Corporation has more restrictive ownership requirements, limiting the number and type of shareholders, allowing only one class of stock, and requiring proportional profit distribution based on share ownership. Consider these differences when deciding which business structure best fits your needs and goals.

Which is easier to incorporate in Alaska: LLC or S-Corp?

Filing an LLC or S-Corporation in Alaska requires planning and time. Even though it is not as simple as it appears, something manageable keeps it from being too difficult. LLC and S-Corporations can be formed using Registered Agent. To establish an LLC in Alaska, you must submit the Articles of Organization to the Alaska Department of Commerce, Community, and Economic Development. Your Articles of Organization must include information about your Alaska LLC, as well as payment of the associated filing fee.

Furthermore, you must submit additional papers to make the Alaska S-Corporation election. Fill out Form 8832 to notify the Internal Revenue Service that you prefer to tax your LLC as a corporation rather than a partnership. Then you’ll submit Form 2553 to select S-Corporation status.

Remember that you must file annual tax returns and reports after forming your LLC to remain legally compliant.

Who Pays More Taxes in Alaska: LLC or S-Corp?

Taxes for LLCs and S-Corporations in Alaska depend on the tax purposes and the profit generated. LLCs are typically taxed at personal rates, and LLC owners can be treated as separate companies with their own federal tax identification numbers. You can check the Alaska LLC Cost for detailed information.

Alaska S-Corporation owners, on the other hand, must be paid a salary that includes Social Security and Medicare taxes. On the other hand, the owner can receive dividend income or some of the leftover profits without being classified as an employee and thus will not be subject to Social Security and Medicare taxes on that money.

Should I Incorporate Alaska LLC as an S-Corporation?

Forming an LLC may be advantageous because your business assets are separate from your personal assets if you are a sole proprietor. You are not restricted from converting your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and follow more regulations, it is ideal for larger companies with more shareholders.

How do you convert LLC to S-Corporation in Alaska?

You must submit Form 2553, Election by a Small Business Corporation, to the IRS to elect S-corp taxes if you want to form an LLC as an S-Corporation in Alaska. A Form 2553 must be submitted by 75 days following the creation of your S-Corp or by 75 days following the start of the tax year in which the election is to be effective. 

You must also submit Form 8832, Entity Classification Election if your LLS-Corp has passed the deadline of 75 days and you wish to elect to be taxed as a corporation. You would collectively transmit Forms 2553 and 8832 via certified mail from the USPS. You can send your Form 2553 to the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520​ in Alaska.

FAQs

Can LLC and S-corp both be formed in Alaska?
Yes, Alaska allows formation of both LLC and S-corp.
How does LLC differ from S-corp?
LLC offers more flexibility and less formalities than S-corp.
Who can form a LLC in Alaska?
LLC can be formed by individuals, partnerships, corporations, and even other LLCs.
Is forming LLC in Alaska expensive?
No, forming LLC in Alaska is relatively cheap when compared nationally.
What is the tax treatment for LLC in Alaska?
LLC is considered a pass-through entity and its members are taxed at individual rates.
Can a foreign person form LLC in Alaska?
Yes, a foreign person can form an LLC in Alaska.
What are the formation requirements for S-corp in Alaska?
To form an S-corp, you must have a state license and file articles of incorporation with Alaska’s Corporations Section.
Does S-corp provide any tax benefits in Alaska?
Yes, S-corp can provide some tax benefits to its shareholders.
Can S-corp be converted to LLC in Alaska?
Yes, S-corp can be converted to LLC in Alaska.
What is the minimum number of members or shareholders for forming LLC or S-corp in Alaska?
There’s no minimum number of members required to form an LLC, however Alaska requires S-Corp to have at least 2 shareholders.
Do LLCs have to hold annual meetings in Alaska?
No, LLCs in Alaska are not required to hold any formal meetings.
What is the liability protection provided by LLC in Alaska?
LLC provides limited liability protection to its members in Alaska.
Does S-corp offer the same liability protection as LLC in Alaska?
Yes, S-corp offers the same level of liability protection as LLC in Alaska.
What is the filing fee for forming LLC in Alaska?
The filing fee for forming LLC in Alaska is $250.
Can LLC be taxed as C-corp in Alaska?
Yes, LLC can elect to be taxed as C-corp in Alaska.
What tax forms are required for reporting income for LLC in Alaska?
You’ll need to file Form 8913 and Form 1065 to report income for LLC in Alaska.
Is naming requirement for S-corp and LLC same in Alaska?
No, naming requirements for LLC and S-corp are different in Alaska.
How long does it take for LLC to be approved in Alaska?
It takes 3-5 business days for Alaska to approve LLC.
What happens to S-corp in Alaska when its owner dies?
S-corp is dissolved when the owner dies, unlike LLC which continues its existence.
Can shareholders of S-corp lose more than their initial investment in Alaska?
No, shareholders of S-corp can’t lose more than their initial investment in Alaska.
Is there any annual state tax on the income of LLC or S-corp in Alaska?
No, there’s no annual state tax on the income of LLC or S-corp in Alaska.
Can Alaska allow foreign LLCs to register to conduct business in the state?
Yes, Alaska allows foreign LLCs to register to conduct business in the state.
How much do I have to pay annually to maintain my LLC in Alaska?
You have to pay $100 annually in Alaska to maintain your LLC.
Can an LLC in Alaska be a nonprofit organization?
Yes, LLC in Alaska can be a nonprofit organization.
What is the process of changing the name of an S-corp in Alaska?
To change the name of an S-corp in Alaska, you must file a name change with the Corporations Section.
Is the personal income of shareholders taxed in addition to the business tax levied by an S-corp in Alaska?
No, the personal income of shareholders at S-corp in Alaska is not taxed in addition to the business tax levied of S-corp.
Can a resident of some other state create an LLC in Alaska?
Yes, a resident of some other state can create LLC in Alaska.
Can a single member-run LLC in Alaska have multiple managers of the company?
Yes, a single member-run LLC in Alaska can have multiple managers.
Is it mandatory for Alaska’s S-corporation to file for licensing and permits?
Yes, Alaska’s S-corporation needs permits and licenses depending upon the business entity.
What is the difference between an LLC and an S-Corp in Alaska?
An LLC is a type of business structure, while an S-Corp is a specific tax designation for a corporation.
Which is better for my business, an LLC or an S-Corp in Alaska?
It depends on your business needs and goals. Consult with a professional to determine the best option for you.
Can an LLC be taxed as an S-Corp in Alaska?
Yes, an LLC can elect to be treated as an S-Corp for tax purposes in Alaska.
How do I form an LLC or S-Corp in Alaska?
You can complete and file the necessary paperwork and pay the fees online through the Alaska Division of Corporations, Business, and Professional Licensing.
What are the fees involved in forming an LLC or S-Corp in Alaska?
The fees vary depending on the type of business entity. A standard LLC filing fee in Alaska costs $250, while an S-Corp election does not have any additional fees.
Can non-US citizens form an LLC or S-Corp in Alaska?
Yes, non-US citizens can form an LLC or S-Corp in Alaska as long as they have a legal ID or tax-number (EIN).
Are there any residency requirements for forming an LLC or S-Corp in Alaska?
There are no residency requirements for forming an LLC or S-Corp in Alaska.
How many members or shareholders are required to form an LLC or S-Corp in Alaska?
For an LLC, there must be at least one member. For an S-Corp, there can be up to 100 shareholders.
Do I need to file an annual report for my LLC or S-Corp in Alaska?
Yes, both LLCs and S-Corps in Alaska are required to file an annual report with the Division of Corporations, Business, and Professional Licensing and pay the associated fees.
Do I need to have a physical office in Alaska to form an LLC or S-Corp in Alaska?
No, you do not need to have a physical office in Alaska to form either an LLC or S-Corp.
What are the liability protections for LLCs and S-Corps in Alaska?
Both LLCs and S-Corps provide limited liability protection to their owners, shielding personal assets from business debts and obligations.
Can I convert my LLC into an S-Corp in Alaska?
Yes, an LLC can elect to be treated as an S-Corp for tax purposes as long as certain criteria are met.
Do I need to have a business purpose when forming an LLC or S-Corp in Alaska?
Yes, both LLCs and S-Corps must have a legitimate business purpose in order to be formed in Alaska.
How many classes of stock can an S-Corp in Alaska issue?
An S-Corp in Alaska is limited to a single class of stock.
How are LLCs and S-Corps taxed differently in Alaska?
LLCs are typically subject only to pass-through taxation, meaning the business itself is not taxed; instead, profits or losses are passed through to each individual member and taxed on their individual income tax returns. S-Corps are also pass-through entities, but there are additional tax benefits associated with this designation.
What are the limitations of an S-Corp in Alaska?
S-Corps are limited in the number of shareholders they can have, the types of shareholders they can have, and the kinds of stock they can issue.
Can an LLC or S-Corp in Alaska engage in any type of business activity?
No, Alaska law prohibits certain types of businesses from being operated as LLCs or S-Corps, including insurance companies, public utilities, and banks.
Are LLC or S-Corps required to have an operating agreement in Alaska?
Although an operating agreement is not legally required in Alaska, LLCs should identify operating details in writing amongst the members and professionals always recommend having one.
How do LLCs and S-Corps protect my personal assets in the event of a lawsuit or legal action in Alaska?
Both LLCs and S-Corps create a legal separation between the owner’s personal assets and the business; should a legal matter arise, only the business assets would be subject to any legal penalties or liability.
Are there any special taxes or fees associated with LLCs or S-Corps operating in Alaska?
You might be subject to harbor fee and tourism tax if you do business in or with a business registered in Alaska. Double checking the regulations regarding specialist enterprises can be highly beneficial.
Will my LLC or S-Corp be recognized by other states if it is formed in Alaska?
Yes, your LLC or S-Corp can be recognized by other states if they meet the stated criteria.
Are there any minimum income requirements for LLCs or S-Corps to qualify for taxation in Alaska?
No, no minimum income requirements are necessary for LLC or S-Corp taxation in Alaska.
Can I have my LLC or S-Corp owned by another entity in Alaska?
Yes, another LLC or corporation can own an LLC or S-Corp in Alaska.
Is a franchise or agricultural business eligible for formation as an LLC or S-Corp in Alaska?
Yes, LLCs and S-Corps can operate in any legal business industry, including agriculture and franchises.
Will I need to obtain a business license or permit to operate an LLC or S-Corp in Alaska?
Both LLCs and S-Corps are typically required to obtain business licenses and permits to operate in Alaska.
Can I form an LLC or S-Corp to protect my assets in Alaska?
Yes, forming a limited liability entity such as an LLC or S-Corp can protect your personal assets if the business incurs legal or financial liabilities.
Do I need an attorney to form an LLC or S-Corp in Alaska?
You are not required by law to hire an attorney to form an LLC or S-Corp, but other professionals such as accountants and business service providers can help simplify or facilitate the process.
Are there any ongoing requirements or responsibilities after forming an LLC or S-Corp in Alaska?
Yes, aside from paying the annual report and associated fees on time, both LLCs and S-Corps are required to operate according to stated guidelines and protocols.

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Conclusion

Ultimately, choosing an LLC and an S-Corp in Alaska will depend on your business goals, management preferences, and tax considerations. It’s essential to consult with a legal or financial advisor to determine which structure is best for your business in Alaska and help you navigate the formation process. Making an informed decision will set your business up for success and ensure you’re well-positioned for growth and profitability.

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