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

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LLC vs S-Corp in Wisconsin

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

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 Wisconsin

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 Wisconsin?

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 Wisconsin?

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

Creating a business in Wisconsin 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 Wisconsin 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 Wisconsin 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 Wisconsin.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in Wisconsin

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

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

Wisconsin 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 Wisconsin, it costs $25, which can be paid to the WI Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $170 (by mail and $130 online) to the Wisconsin Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in Wisconsin 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

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

Wisconsin 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

Wisconsin 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 Wisconsin.

Wisconsin 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

Wisconsin 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.

Wisconsin 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

Wisconsin 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 Wisconsin Operating Agreement.

Wisconsin 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.

Wisconsin 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 Wisconsin: LLC or S-Corp?

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

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

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

Wisconsin 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 Wisconsin 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 Wisconsin?

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 Wisconsin. 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 Wisconsin.

FAQs

What are the advantages of forming an LLC in Wisconsin?
LLCs in Wisconsin enjoy limited liability protection, meaning owners are not personally responsible for business debts and liabilities.
What are the advantages of forming an S-corp in Wisconsin?
S-corps in Wisconsin enjoy pass-through taxation, meaning the business itself is not taxed on its profits, but instead, the profits are “passed through” and taxed at the individual level.
Which is better for a small business, an LLC or S-corp in Wisconsin?
The best choice for a small business depends on its goals and needs. However, both LLCs and S-corps can offer significant benefits for owners, such as asset protection and tax advantages.
Does Wisconsin require LLCs and S-corps to have bylaws or operating agreements?
While not legally required, it’s important for both LLCs and S-corps in Wisconsin to create bylaws or operating agreements to help establish the business’s management structure, decision-making process, and other important details.
How does forming an LLC or S-corp in Wisconsin impact my personal liability?
Both LLCs and S-corps can protect business owners from personal liability for the business’s debts and legal obligations. However, it’s important to follow proper procedures and separation of personal and business finances to avoid “piercing the corporate veil.”
Can an LLC or S-corp in Wisconsin elect to be taxed as a C-corp?
Yes, both LLCs and S-corps in Wisconsin can choose to be taxed as a C-corp if the owners determine that it’s the most beneficial tax structure for the business.
How do I file for an LLC or S-corp in Wisconsin?
To form an LLC or S-corp in Wisconsin, you must file Articles of Organization or Incorporation with the Wisconsin Division of Corporations, along with paying the required fees and documentation.
How much does it cost to form an LLC or S-corp in Wisconsin?
The costs associated with forming an LLC or S-corp in Wisconsin can vary depending on the business’s needs and structures, but typically range from $100-500.
How long does it take to form an LLC or S-corp in Wisconsin?
The processing time for forming an LLC or S-corp in Wisconsin can vary, but most applications are processed within several weeks.
Are there any residency requirements for forming an LLC or S-corp in Wisconsin?
No, there are no residency requirements for forming an LLC or S-corp in Wisconsin.
Can I form an LLC or S-corp in Wisconsin while operating a business in another state?
Yes, you can form an LLC or S-corp in Wisconsin while operating a business in another state. However, you may be required to register the business in that state as well.
What is the annual report requirement for LLCs and S-corps in Wisconsin?
LLCs and S-corps in Wisconsin are required to file an annual report with the state, which includes basic information about the business and a fee.
Can an LLC or S-corp in Wisconsin have only one member or shareholder?
Yes, both LLCs and S-corps in Wisconsin can have a single owner or shareholder.
Does Wisconsin require a registered agent for LLCs and S-corps?
Yes, Wisconsin requires LLCs and S-corps to have a registered agent with a physical address in the state.
Can an LLC or S-corp change its tax structure in Wisconsin?
Yes, both LLCs and S-corps can change their tax structure in Wisconsin, although the process and requirements for doing so can be complex.
Are LLCs and S-corps in Wisconsin required to hold meetings?
Yes, both LLCs and S-corps in Wisconsin are required to hold meetings of shareholders or members, and keep proper records of those meetings.
Does Wisconsin offer any tax incentives for businesses?
Wisconsin offers a range of tax incentives to businesses, including tax credits, state grants, and enterprise zone and other development programs.
Can an LLC or S-corp form a professional corporation in Wisconsin?
Both LLCs and S-corps can form a professional corporation in Wisconsin, which is typically required for licensed professionals like doctors and lawyers.
Can an LLC or S-corp operate a business in multiple states?
Yes, both LLCs and S-corps in Wisconsin can operate businesses in multiple states. However, they must comply with the registration and other requirements of each state where they do business.
Are foreign LLCs and S-corps allowed to do business in Wisconsin?
Yes, foreign LLCs and S-corps can do business in Wisconsin. However, they must register with the state and appoint a registered agent.
Can a sole proprietorship convert to an LLC or S-corp in Wisconsin?
Yes, a sole proprietorship can convert to an LLC or S-corp in Wisconsin by filing the necessary paperwork with the state.
Can LLC or S-corps have subsidiaries in Wisconsin?
Yes, both LLCs and S-corps can have subsidiaries in Wisconsin, as long as they comply with state and federal regulations.
Are online businesses required to register as an LLC or S-corp in Wisconsin?
Yes, online businesses in Wisconsin are required to register as LLCs or S-corps if they meet the legal requirements for doing so.
Do LLCs or S-corps in Wisconsin need to obtain a state license or permit to operate?
Depending on their location and industry, both LLCs and S-corps in Wisconsin may need to obtain state licenses or permits to operate legally.
What is the role of a CPAs in Wisconsin for LLCs and S-corps?
Certified public accountants (CPAs) can play an important role in assisting LLCs and S-corps in Wisconsin with taxes, accounting, and financial planning.
What is the process for filing taxes as an LLC or S-corp in Wisconsin?
LLCs and S-corps in Wisconsin must file annual state income tax returns, along with other required filings for the appropriate taxes.
Are there any rules for naming an LLC or S-corp in Wisconsin?
Yes, LLCs and S-corps in Wisconsin must choose a unique business name, and cannot use language that implies they are a different entity or business type.
How is the liability of LLCs tax differently from S-corps in Wisconsin?
LLCs in Wisconsin enjoy limited liability protection, similar to S-corps. However, while S-corps enjoy pass-through taxation, LLCs can choose how they are taxed, either as a pass-through entity or a C-corp.
What is the main difference between an LLC and an S-corp?
The main difference between an LLC and an S-corp is the way they are taxed. LLCs are taxed as a pass-through entity, while S-corps have certain restrictions in terms of ownership and can elect to be taxed as a corporation.
Can an LLC choose to be taxed as an S-corp in Wisconsin?
Yes, an LLC in Wisconsin can choose to be taxed as an S-corp by filing the necessary forms with the IRS.
Do I need to file an operating agreement for my Wisconsin LLC?
While it isn’t legally required in Wisconsin to have an operating agreement for your LLC, it is highly recommended to have one in place to clarify ownership and management roles within the company.
Can an LLC in Wisconsin be owned by a single member?
Yes, an LLC in Wisconsin can be owned by a single member.
Can a non-US citizen form an LLC or S-corp in Wisconsin?
Yes, non-US citizens living outside of the United States can form both LLCs and S-corps in Wisconsin.
Can an LLC or S-corp in Wisconsin have a non-Wisconsin resident as a registered agent?
No, the registered agent for an LLC or S-corp in Wisconsin must be a Wisconsin resident or a Wisconsin company.
Do I need to pay a franchise tax if I form an LLC or S-corp in Wisconsin?
No, Wisconsin does not have a franchise tax.
What is the cost to form an LLC or S-corp in Wisconsin?
The cost to form an LLC in Wisconsin is $130, while the cost to form an S-corp in Wisconsin is $100.
Can a Wisconsin LLC or S-corp elect to have a fiscal year-end other than December 31st?
Yes, Wisconsin LLCs and S-corps can elect to have a fiscal year-end other than December 31st by filing the necessary forms with the IRS.
Can an LLC or S-corp change its legal structure after it has been formed in Wisconsin?
Yes, an LLC or S-corp can change its legal structure (such as converting from an LLC to an S-corp) by filing the appropriate paperwork with the IRS and Wisconsin state agencies.
Are there any annual reporting requirements for LLCs and S-corps in Wisconsin?
Yes, both LLCs and S-corps in Wisconsin are required to file an annual report with the Wisconsin Department of Financial Institutions, which includes information about the company’s ownership and management.
Do LLCs and S-corps in Wisconsin need bylaws?
While bylaws aren’t required for LLCs and S-corps in Wisconsin, it is recommended to have operating agreements (for LLCs) and shareholder agreements (for S-corps) in place to clarify ownership and management roles within the company.
Can a Wisconsin LLC have a single member and still be taxed as a corporation?
No, in order for an LLC in Wisconsin to be taxed as a corporation, it must have multiple members.
Can I be personally liable if my Wisconsin LLC or S-corp incurs debts or lawsuits?
Wisconsin LLCs and S-corps offer limited liability protection, which means that owners are only liable for the amount of money they have invested in the company.
Can a Wisconsin LLC or S-corp invest in real estate?
Yes, Wisconsin LLCs and S-corps can invest in real estate.
Can an individual be both a member of an LLC and a shareholder of an S-corp in Wisconsin?
Yes, it is possible for an individual to be both a member of an LLC and a shareholder of an S-corp in Wisconsin.
Can an LLC or S-corp in Wisconsin pay its owners a salary?
Yes, both LLCs and S-corps in Wisconsin can pay their owners a salary.
Are there any limitations on the number of owners an S-corp can have in Wisconsin?
Yes, an S-corp in Wisconsin can have no more than 100 shareholders.
Can an S-corp in Wisconsin be owned by another corporation?
No, an S-corp in Wisconsin cannot be owned by another corporation.
Can an LLC in Wisconsin be owned by a corporation?
Yes, an LLC in Wisconsin can be owned by a corporation.
Can a Wisconsin LLC have an unlimited number of members?
No, there is no limit to the number of members an LLC can have in Wisconsin.
Are LLCs and S-corps in Wisconsin subject to Wisconsin corporate income tax?
No, LLCs and S-corps in Wisconsin are not subject to Wisconsin corporate income tax but are subject to Wisconsin taxes on gains and losses.
Do I need a lawyer to form an LLC or S-corp in Wisconsin?
While you don’t legally need a lawyer to form an LLC or S-corp in Wisconsin, it is recommended to seek legal advice to ensure compliance with state and federal regulations.
Are there any restrictions to forming an LLC or S-corp in Wisconsin regarding industries or professions?
No, there are no restrictions on forming an LLC or S-corp in Wisconsin based on the industry or profession.

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Conclusion

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