Get to know YOUR tax Law

Tax law does not only vary by country but by state and city as well. Learn what you need to do.

You must know the tax law that implicates your corporation. The best way to do so is to consult with us unless you want to continue reading and manage it on your own ;)

Reminder: the issue with Section 280e is disallowance to deduct which is called a phantom income. In other words, your company will taxed on money you never even saw. Therefore, corporations create secondary businesses.

Hence when choosing corporations, there are always advantages and disadvantages between different enterprises. In this blog post, we will talk about LLC vs. S corporations. These are both popular entities for businesses, and in this blog post, we will explain their different characteristics and which one might fit you better.

What Corporation should I pick?

First of all, there is no perfect choice that fits all. There are many factors in whether you should become an S, LLC, or C corporation. S corporations often distinguish themselves because of the tax advantages that they offer. S corporations fall under Subchapter S taxation of the Internal Revenue Code, also known as a "pass-through" entity when talking tax purposes. S and C corporations are similar in the sense they offer similar liability protection, ownership, and management advantages. Yet, they fall under different Subchapters.

LLC vs S Corporation

So, while there is not a significant disparity between an S and LLC corporation when it comes to state corporation laws, there is a difference in taxing. LLC corporations are taxed by default and fall under Subchapter K if not a singular member. Hence, LLCs and S Corporations have their very own legal existence. When filing for an S corporation, the files must go through the IRS election form. However, filing for an LLC is made through filing articles of organization within the formation state. Nevertheless, LLCs and S corporations provide limited liability and pass-through taxation for their personal owners. One of the benefits of LLCs is their flexibility on everything from management down to financial interests.

Guideline of thinking when picking a S vs. LLC corporation

You may prefer an S corp if you:

• Want to have earnings dis tributed proportionately to capital contributions.

• Want to earn a salary instead of self-employment income

• Want ease of obtaining investment capital

• Want pass-through taxation but prefer the corporate form of entity

• Want to be a C Corp later

You may prefer an LLC corp if you:

• Want a high degree of management flexibility in running your company

• Want to allocate profits and losses based upon criteria other than ownership percentage

• Prefer to avoid the state-mandated requirements imposed on corporations, such as annual meetings

• Don’t foresee raising capital by selling ownership stakes to many investors or by going public

• Feel pass-through taxation is important

So...

It is finally up to you to decide what you want to do, but we are always here to help with any questions regarding taxes or your cannabis business.