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

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LLC vs S-Corp in Indiana

When starting a small business in the Indiana, 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 Indiana. 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 Indiana. 

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 Indiana

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 Indiana?

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 Indiana?

Unlike a limited liability company (LLC) or other business structures, Indiana 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 Indiana

Creating a business in Indiana 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 Indiana 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 Indiana 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 Indiana.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in Indiana

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 Indiana 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 Indiana. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

  • Pass-Through Taxes: LLC and S-Corporation in Indiana 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 Indiana 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 Indiana 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 Indiana 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.

Indiana 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 Indiana, it costs $0, which can be paid to the IA Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $100 (by mail and $95 online) to the Indiana Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in Indiana 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

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

Indiana 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

Indiana 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 Indiana.

Indiana 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

Indiana 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.

Indiana 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

Indiana 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 Indiana Operating Agreement.

Indiana 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.

Indiana 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 Indiana: LLC or S-Corp?

Filing an LLC or S-Corporation in Indiana 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 Indiana, you must submit the Articles of Organization to the Indiana Secretary of State. Your Articles of Organization must include information about your Indiana LLC, as well as payment of the associated filing fee.

Furthermore, you must submit additional papers to make the Indiana 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 Indiana: LLC or S-Corp?

Taxes for LLCs and S-Corporations in Indiana 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 Indiana LLC Cost for detailed information.

Indiana 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 Indiana 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 Indiana?

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 Indiana. 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 – Kansas City, MO 64999 Fax: 855-887-7734​ in Indiana.

FAQs

What does an LLC in Indiana offer that an S-Corp does not?
LLCs in Indiana are not required to have a designated management structure like an S-Corp is required to have.
How much does it cost to form an LLC in Indiana?
It costs $95 to form an LLC in Indiana.
How much does it cost to form an S-Corp in Indiana?
It costs $100 to form an S-Corp in Indiana.
How is an LLC taxed in Indiana?
LLCs in Indiana are taxed like a partnership or sole proprietorship, where the profits and losses of the business pass through to the owners.
How is an S-Corp taxed in Indiana?
S-Corps in Indiana are not taxed at the corporate level. Instead, the profits and losses are passed through to the shareholders, who report it on their individual tax returns.
What are the ownership restrictions for an S-Corp in Indiana?
An S-Corp in Indiana cannot have more than 100 shareholders.
What are the ownership restrictions for an LLC in Indiana?
LLCs in Indiana do not have any ownership restrictions.
Can an LLC in Indiana have multiple owners?
Yes, LLCs in Indiana can have multiple owners.
Can an S-Corp in Indiana have multiple owners?
Yes, S-Corps in Indiana can have multiple owners.
How is forming an LLC in Indiana different from an S-Corp?
Forming an LLC in Indiana is easier and less expensive than forming an S-Corp.
How can a business convert from an LLC to an S-Corp in Indiana?
A business can change its tax status from an LLC to an S-Corp in Indiana by filing IRS Form 2553.
How long does it take to form an LLC in Indiana?
It typically takes 3-5 business days to form an LLC in Indiana.
How long does it take to form an S-Corp in Indiana?
It typically takes 10-15 business days to form an S-Corp in Indiana.
Can an LLC in Indiana elect S-Corp status for tax purposes?
Yes, an LLC in Indiana can elect to be taxed as an S-Corp by filing IRS Form 2553.
Can an S-Corp in Indiana switch to being taxed as an LLC?
No, an S-Corp in Indiana cannot switch to being taxed as an LLC.
Are LLCs in Indiana required to hold annual meetings?
No, LLCs in Indiana are not required to hold annual meetings.
Are S-Corps in Indiana required to hold annual meetings?
Yes, S-Corps in Indiana are required to hold annual meetings.
What are the filing requirements for an LLC in Indiana?
LLCs in Indiana are required to file an annual report with the Indiana Secretary of State.
What are the filing requirements for an S-Corp in Indiana?
S-Corps in Indiana are required to file an annual franchise tax report with the Indiana Secretary of State.
Are LLCs in Indiana subject to Indiana business taxes?
Yes, LLCs in Indiana are subject to Indiana business taxes.
Are S-Corps in Indiana subject to Indiana business taxes?
No, S-Corps in Indiana are not subject to Indiana business taxes.
What are the liability protections for an S-Corp in Indiana?
S-Corps in Indiana offer liability protection to its shareholders like LLCs.
What are the liability protections for an LLC in Indiana?
LLCs in Indiana offer liability protection for its members, which means that the personal assets of members are generally protected from business liabilities.
How is ownership of an S-Corp in Indiana transferred?
Shares of an S-Corp in Indiana can be bought and sold to transfer ownership.
How is ownership of an LLC in Indiana transferred?
Ownership of an LLC in Indiana can be transferred by assigning the ownership percentage of the business from one member to another.
Can an S-Corp and an LLC in Indiana have the same owners?
Yes, an S-Corp and an LLC in Indiana can have the same owners.
Can an LLC in Indiana convert to an S-Corp for tax purposes only?
Yes, an LLC in Indiana can convert to an S-Corp for tax purposes only by filing IRS Form 2553.
Can an S-Corp in Indiana convert to an LLC for tax purposes only?
No, an S-Corp in Indiana cannot convert to an LLC for tax purposes only.
What are LLCs and S-corps?
LLCs and S-corps are both legal structures that offer limited personal liability protection for business owners.
What are the benefits of establishing an LLC in Indiana?
Some benefits of establishing an LLC in Indiana include greater flexibility in management structures, fewer formalities to follow, and protection of personal assets from business debts or liabilities.
What are the benefits of establishing an S-corp in Indiana?
Some benefits of establishing an S-corp in Indiana include limited personal liability protection for owners, more potential flexibility in tax treatment, and the potential to attract investors more easily than with an LLC structure.
How do LLC and S-corp tax treatment differ in Indiana?
LLCs are generally taxed like sole proprietorships, but can also elect to be treated as a corporation or partnership for tax purposes in some cases. S-corps are taxed differently than other types of corporations, and income is generally passed through to shareholders to be reported on their own individual tax returns.
What are the filing requirements for LLCs in Indiana?
The state of Indiana requires LLCs to file an annual report every year by a specific deadline in order to maintain good standing.
What are the filing requirements for S-corps in Indiana?
Similar to LLCs, S-corps established in Indiana need to file annual reports in order to stay in good standing with the state.
What fees and taxes are associated with establishing an LLC in Indiana?
Businesses may need to pay a fee to register their LLC in Indiana, and will also need to pay various state taxes depending on the business’s size and structure.
What fees and taxes are associated with establishing an S-corp in Indiana?
Fees associated with establishing an S-corp are similar to those for LLCs, but taxes may be structured differently depending on the corporation structure and shareholders involved.
What happens if a business doesn’t file required reports on time in Indiana?
If a business fails to file required reports on time in Indiana, they may face fines or penalties and may even lose their status as a legally operating business in the state.
Which legal structure is best for a small business in Indiana?
The type of legal structure that’s best for a small business in Indiana will depend on several factors including the owner’s personal financial goals and the nature of the business’s operations.
Do LLCs protect business owners from personal liability in Indiana?
Generally speaking, establishing an LLC in Indiana can offer business owners personal liability protection, but there are many legal and financial factors that contribute to determining the ultimate level of liability protection.
Are S-corps a type of LLC in Indiana?
No, LLCs and S-corps are two distinct types of business structures that provide specific legal and financial benefits.
How is income from LLCs taxed in Indiana?
Income from LLCs in Indiana can be taxed in a variety of ways depending on the owners’ choices but often receive pass-through taxation like sole proprietorships.
What are some factors to consider when deciding between operating as an LLC or S-corp in Indiana?
Some of the most important factors to consider when choosing between an LLC and S-corp in Indiana include the level of personal liability protection and overall flexibility to manage and operate the business.
Can I convert my LLC to an S-corp in Indiana?
Yes, companies formed as LLCs in Indiana or any other state for that matter can convert to an S-corp in Indiana by meeting the requirements of both their state’s laws regarding LLCs and the federal Internal Revenue Code.
What fee is required to establish an LLC in Indiana?
An initial filing fee is usually required to register an LLC in Indiana, but the level may vary by company type or other factors.
If I run a non-profit business in Indiana, can I establish an LLC or S-corp structure?
Some non-profit businesses can be established as LLCs or S-corps in Indiana, though there are some additional legal requirements and restrictions for non-profit organizations.
What are the legal requirements to form an LLC in Indiana?
The exact legal requirements necessary to form an LLC in Indiana will vary depending on the individual nature and purpose of the business, but some common requirements include document filings with the Indiana Secretary of State and appointment of a registered agent for service of process.
Can an LLC be established without members (owners) in Indiana?
No, an LLC in Indiana and all other states must have at least one designated owner (or “member”) in order to be established.
Are there specific licensing requirements for LLCs or S-corps in Indiana?
Some types of LLCs and S-corps in Indiana are subject to specific licensing and permitting requirements, depending on the industry where the business is operated.
When can I apply for a tax ID for my LLC or S-corp in Indiana?
A company can apply for its employer identification number or EIN in Indiana once it has established its legal entity in accordance with state laws.
What documents are needed for an LLC formation in Indiana?
The types of documents needed and records required to form an Indiana LLC may vary depending on the exact details and purpose of the business, but generally, you need to file articles of organization with the Indiana Secretary of State, an operating agreement determining how the business is conducted, and determination of the registered agents.
Can I form an LLC or S-corp by myself in Indiana?
You can technically establish either LLCs or S-corps in Indiana independently, but it’s a smart choice to consult a reputable attorney or other trusted legal professional for better decision-making about your business benefits and liabilities.
Do S-corps offer personal liability protection in Indiana?
One benefit of operating as an S-corp in Indiana is that owners are eligible for some degree of personal liability protection compared to where they operate as a sole proprietor.
Do LLCs have to file tax returns in Indiana?
Depending on the LLC’s internal structure and other legal qualifications, some LLCs in Indiana may be subject to state tax requirements, including filing tax returns or paying taxes on profits.
What are the record-keeping requirements for LLCs and S-corps in Indiana?
Both LLCs and S-corps in Indiana are required to keep accurate records of transactions and financial activity, including any records that will be used to pay taxes.
Can I change my LLC’s legal name in Indiana later?
Depending on the specific situation and purpose, changing the name of an LLC in Indiana requires compliance with a specific process, including fillings and conveyance of proper notices to owners and creditors.
How will employees of an LLC or S-corp be classified for wage and tax purposes in Indiana?
Employees belonging to an LLC or S-corp in Indiana are typically classified based on their official designated roles and other factors to determine applicable federal and state guidelines about wage and tax obligations.
Are LLCs or S-corps better for companies in Indiana doing business in multiple states?
Companies operating in various jurisdictions or expansive locations often require far more extensive analysis when deciding whether to choose an LLC or S-corp model, but both options offer several advantages and limitations depending on factors relating to markups and permitting.

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Conclusion

Ultimately, choosing an LLC and an S-Corp in Indiana 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 Indiana 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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