Why would I create a corporation instead of an LLC?

A corporation is its own entity so it files its own taxes. Therefore, unlike an LLC, the corporation’s taxes are in no way connected to the shareholders. Even though the formalities of starting and maintaining a corporation are more stringent, the tax benefits to corporations are greater. The tax rates for corporations are set by Congress and usually change less frequently and are lower than personal levels of tax. Also, with comprehensive tax planning, greater savings can be achieved.

As a corporation is an independent legal entity, shareholders can become employees of the corporation whereas with LLCs, members cannot be considered employees and do not receive W-2 salaries. Shareholder employees of corporations are expected to receive a reasonable salary that will be taxed like any normal employee.


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