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

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LLC vs S-Corp in Nebraska

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

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 Nebraska

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 Nebraska?

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 Nebraska?

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

Creating a business in Nebraska 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 Nebraska 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 Nebraska 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 Nebraska.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in Nebraska

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

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

Nebraska 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 Nebraska, it costs $5, which can be paid to the NV Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $110 (by mail and $100 online) to the Nebraska Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in Nebraska 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

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

Nebraska 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

Nebraska 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 Nebraska.

Nebraska 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

Nebraska 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.

Nebraska 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

Nebraska 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 Nebraska Operating Agreement.

Nebraska 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.

Nebraska 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 Nebraska: LLC or S-Corp?

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

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

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

Nebraska 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 Nebraska 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 Nebraska?

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 Nebraska. 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 Nebraska.

FAQs

What is an LLC in Nebraska?
An LLC (Limited Liability Company) is a popular business entity type in Nebraska. It is a flexible and relatively simple structure that can help protect business owners from personal liability.
What is an S-Corp in Nebraska?
An S-Corp is a type of business entity that enjoys special tax treatment under federal law. In Nebraska, S-Corps are often used by small businesses that want to avoid double taxation that can occur with C-Corp structures.
What are the advantages of an LLC in Nebraska?
Advantages of an LLC in Nebraska include personal liability protection for business owners, flexible management structures, pass-through taxation, and the simplicity of formation in comparison to S-Corps.
What are the advantages of an S-Corp in Nebraska?
Key advantages of an S-Corp in Nebraska include tax benefits, personal liability protection for business owners, flexibility in terms of ownership structure, and the ability to raise capital more easily than with an LLC.
What is the process of forming an LLC in Nebraska?
The process of forming an LLC in Nebraska involves filing articles of organization with the Secretary of State, paying a fee, selecting a registered agent, and drafting an operating agreement.
What is the process of forming an S-Corp in Nebraska?
To form an S-Corp in Nebraska, a business owner must first incorporate as a C-Corp with the state, then file an IRS Form 2553 to request S-Corp status. Other steps may include obtaining business licenses and hiring a registered agent.
Which type of business entity is more popular in Nebraska, LLC or S-Corp?
The popularity of LLCs and S-Corps varies depending on the industry and region in Nebraska. Overall, LLCs tend to be more popular due to their flexibility and simplicity.
Are LLCs or S-Corps more costly to form in Nebraska?
Costs associated with forming LLCs or S-Corps in Nebraska depend on various factors, including the complexity of the business structure, legal fees, and state filing fees. Generally, LLCs are less expensive to form than S-Corps.
Can a single person form an LLC in Nebraska?
Yes, a single person can form an LLC in Nebraska as a single-member LLC. This structure provides several advantages, including personal liability protection and pass-through taxation.
Can a single person form an S-Corp in Nebraska?
Yes, a single person can form an S-Corp in Nebraska, as long as they meet the eligibility requirements and follow the proper procedures for incorporating and obtaining S-Corp status.
Can an LLC elect to be treated as an S-Corp for tax purposes in Nebraska?
Yes, an LLC can elect to be treated as an S-Corp for tax purposes in Nebraska by filing an IRS Form 2553 and meeting other eligibility requirements.
What type of businesses are often formed as LLCs in Nebraska?
LLCs are popular structures for a wide variety of businesses in Nebraska, including small and medium-sized businesses, consulting firms, real estate investors, and others.
What type of businesses are often formed as S-Corps in Nebraska?
S-Corps are often used by smaller businesses with fewer than 100 owners, including family businesses, professional services firms, and other similar organizations.
Which type of business entity has more favorable taxation in Nebraska, LLC or S-Corp?
S-Corps often experience more favorable tax treatment than LLCs, as profits and losses “flow through” to the owners and only individual income taxes are paid. Each situation and business type is different, so it is best to consult an accountant or tax specialist.
Does a Nebraska LLC have to file a state tax return?
Yes, an LLC in Nebraska must file a state tax return if it is not considered a disregarded entity. Additionally, any income earned by Nebraska residents or businesses is subject to Nebraska state taxes.
Does a Nebraska S-Corp have to file a state tax return?
Yes, just like with LLCs, an S-Corp in Nebraska is required to file a state tax return if it is not considered a disregarded entity. Income earned by Nebraska residents or businesses is subject to Nebraska state taxes.
Can an LLC in Nebraska be taxed as a C-Corp for federal tax purposes?
Yes, some Nebraska LLCs may choose to be taxed as C-Corps for federal tax purposes. However, this may increase administrative requirements and tax obligations.
Can a foreign (out of state) LLC do business in Nebraska?
Yes, a foreign (out of state) LLC is allowed to conduct business in Nebraska, but they must register with the Secretary of State before doing so.
Can a foreign (out of state) S-Corp do business in Nebraska?
Yes, a foreign (out of state) S-Corp can do business in Nebraska but must obtain a certificate of authority from the Secretary of State.
Can a Nebraska LLC operate in other states?
Yes, a Nebraska LLC can operate in other states but may be required to register as a foreign LLC with those states.
Can a Nebraska S-Corp operate in other states?
Similar to LLCs, an S-Corp registered in Nebraska can operate in other states but may be required to register as a foreign corporation or qualify to do business there.
What is the personal liability of LLC owners in Nebraska if the business is sued?
LLC owners in Nebraska benefit from personal liability protection if the LLC is sued. This means their personal finances are shielded from any judgment or claim against the LLC, with a few exceptions.
What is the personal liability of S-Corp owners in Nebraska if the business is sued?
As with LLCs, S-Corp owners in Nebraska benefit from personal liability protection if the S-Corp is sued. Exceptions to this rule include issues of fraudulent or negligent behavior.
Can a Nebraska LLC convert to an S-Corp?
Yes, it is possible for a Nebraska LLC to convert to an S-Corp by following the procedures established by the IRS.
Can a Nebraska S-Corp convert to an LLC?
Yes, a Nebraska S-Corp may choose to convert to an LLC, but it should note that this could trigger taxes and other legal implications.
How often does an LLC or an S-Corp need to file a report in Nebraska?
In Nebraska, all LLCs and S-Corps are required to file an annual report with the Secretary of State, usually at the end of their anniversary month.
What if an LLC or S-Corp fails to file an annual report in Nebraska?
If an LLC or S-Corp fails to file an annual report in Nebraska for two consecutive years, its business charter may be revoked or suspended.
Should I talk to an expert in Nebraska before choosing between an LLC and an S-Corp?
Yes, it is recommended that business owners talk to an expert such as an attorney, CPA, tax specialist, or business consultant familiar with the laws and regulations in Nebraska before deciding which business entity structure is best-suited to their needs.
What are the advantages of forming an LLC in Nebraska?
LLCs in Nebraska are easy to form, affordable, provide flexibility in management, allow pass-through taxation, provide limited liability protection, and are governed by flexible rules.
What are the advantages of creating an S-corp in Nebraska?
S-corps in Nebraska offer the advantage of pass-through taxation, limited liability protection, and the ability to raise capital through the sale of stock.
How do LLCs in Nebraska get taxed?
LLCs in Nebraska can choose either to be taxed as a sole proprietorship, partnership, S-corp, or traditional C-corp.
How do S-corps in Nebraska get taxed?
S-corps in Nebraska are not subject to federal income taxation, but profits and losses flow through to individual shareholders who claim them on their individual income tax returns.
How do you form an LLC in Nebraska?
Forming an LLC in Nebraska involves filing Articles of Organization with the Nebraska Secretary of State, deciding on the structure and management of the company, and obtaining all necessary business licenses and permits.
How do you form an S-corp in Nebraska?
To form an S-corp in Nebraska, you must first form a traditional corporation and then file Form 2553 with the IRS to elect S-corp status.
How much does it cost to form an LLC in Nebraska?
It costs $105 to file Articles of Organization with the Nebraska Secretary of State to form an LLC.
How much does it cost to form an S-corp in Nebraska?
It costs $100 to file Articles of Incorporation with the Nebraska Secretary of State to form a traditional corporation. There is no additional cost to file for S-corp status on Form 2553.
Can Nebraska residents form an out-of-state LLC?
Yes, Nebraska residents can form an LLC in another state, but they will still need to register as a foreign LLC with the Nebraska Secretary of State.
Can multiple LLC members live in different states?
Yes, LLC members can live in different states, and the LLC can be taxed as a partnership or corporation for federal income tax purposes.
Can S-corp shareholders live in different states?
Yes, S-corp shareholders can live in different states, but they must all be U.S. citizens or resident aliens and there can only be up to 100 shareholders.
Is it necessary to have an operating agreement for an LLC in Nebraska?
No, but it is highly recommended to have an operating agreement that outlines the company’s structure, management, and ownership, as well as how profits and losses are distributed among members.
Is it necessary to have bylaws for an S-corp in Nebraska?
Yes, bylaws are necessary for an S-corp in Nebraska, and they should outline the company’s governance, management, and procedures for holding meetings and voting on important matters.
Can LLCs and S-corps raise capital through the sale of stocks in Nebraska?
Only S-corps can raise capital through the sale of stocks in Nebraska.
Can LLCs and S-corps be single-member entities in Nebraska?
Yes, LLCs and S-corps can be single-member entities in Nebraska, although having multiple members is recommended for LLCs to provide better liability protection.
Can LLCs convert into S-corps in Nebraska?
Yes, LLCs in Nebraska can convert into S-corps for tax purposes by filing Form 8832 with the IRS.
What are the limitations on operating an S-corp in Nebraska?
S-corps in Nebraska cannot have more than 100 shareholders, cannot issue more than one class of stock, and must have shareholders who are U.S. citizens or resident aliens.
What is the personal liability protection between LLCs and S-corps in Nebraska?
LLCs and S-corps in Nebraska both provide limited liability protection for their owners, which means that the owners are not personally liable for the company’s debts and liabilities.
Which is generally taxed at a lower rate — LLCs or S-corps — in Nebraska?
LLCs and S-corps in Nebraska are taxed at the same rate.
Can LLC owners participate in management?
Yes, LLC owners can participate in management of the LLC if it is structured as a member-managed LLC.
Can S-corp shareholders participate in management?
Yes, S-corp shareholders can participate in management of the corporation if they are also employed by the company.
What is the Nebraska LLC annual fee?
Nebraska LLCs are required to file an Annual Report and pay a $10 fee to the Nebraska Secretary of State.
What is the Nebraska S-corp annual fee?
Nebraska S-corps are required to file an Annual Report and pay a $10 fee to the Nebraska Secretary of State, but there is no additional tax on S-corps in Nebraska.
Can Nebraska LLCs be formed for non-profit purposes?
Yes, Nebraska LLCs can be formed for non-profit purposes, but they must be organized as Low-Profit Limited Liability Companies (L3Cs).
Can Nebraska S-corps be formed for non-profit purposes?
No, S-corps are for-profit entities only.
Can an LLC have an unlimited number of members in Nebraska?
Yes, there is no limit on the number of members an LLC can have in Nebraska.
Can an S-corp be owned by an LLC in Nebraska?
Yes, an LLC can be a shareholder of an S-corp in Nebraska, but it will be subject to the same eligibility requirements as any other shareholder.
Can LLCs in Nebraska change their tax status?
Yes, LLCs in Nebraska can change their tax status by filing Form 8832 with the IRS.
Can S-corps in Nebraska change their tax status?
Yes, S-corps in Nebraska can change their tax status by revoking their S-corp election on Form 2553 and filing a new election at a later date.

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Conclusion

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