LLC vs S-Corp in Arizona


Steve Bennett
Steve Bennett
Business Formation Expert
Steve runs LLCBuddy, helping entrepreneurs set up their LLCs easily. He offers clear guides, articles, and FAQs to simplify the process. His team keeps everything accurate and current, focusing on state rules, registered agents, and compliance. Steve’s passion for helping businesses grow makes LLCBuddy a go-to resource for starting and managing an LLC.

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LLC vs. S Corp in Arizona

Making choices as an entrepreneur is a big challenge, especially when choosing what business structure to form in Arizona. When it comes to a business structure, you can choose whether to have a C-corporation, S-corporation, Sole Proprietorship or an LLC in Arizona. Before you start Arizona LLC filing, you must compare which structure suits you. You might be considering two popular options: a Limited Liability Company (LLC) or an S Corporation (S-Corp). Both of these structures offer distinct advantages and protections, but selecting the right one depends on various factors, including your business goals, tax preferences, and management style.

If you are confused with Arizona LLC vs. S-Corporation, and thinking which one is better and more suitable for the business that you will form, there are a few things that you should consider. Before we get through this article, you should understand what an LLC and S-Corporation mean in Arizona.

LLC vs. S-Corp: Definition

While forming an LLC, you must follow some major steps. It is a business structure that protects your personal assets from getting affected by business liabilities. On the other hand, the S Corp is not a conventional business structure, but it is tax status that your can file with the IRS. S Corp does not provide personal asset protection like an LLC. Here are the detailed definitions of the two-

What is an LLC in Arizona?

A limited liability company (LLC) is a formal business structure that provides personal asset protection. Under this structure, the LLC owner/member can save his/her personal assets in case the business is in debt or is being targeted with a lawsuit. In some special cases, if your company is legally sued, the other party can go after your personal assets. This is called piercing the corporate veil, where you become personally liable for the company’s debt.

Forming an LLC in Arizona gives you a pass-through tax benefit where you don’t have to pay an income tax based on your business revenue; instead, the income tax will be calculated based on your personal income.

What is an S-Corp in Arizona?

An S-Corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-Corporation is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

S-corp is a prominent alternative to the LLC. Unlike a conventional C-corp, S-corp is more suitable for small and medium businesses, such as businesses with 100 shareholders.

LLC Vs. S-Corporation: Which is More Preferable in Arizona?

In Arizona, forming a business is crucial since you need to be adequate in your decision, especially when you think if Arizona LLC or an S-Corporation in Arizona is preferable. An S-Corporation is a tax classification that some small businesses are qualified for, whereas an LLC is a legitimate company form. By submitting a document to the Internal Revenue Sector (IRS), corporations and LLCs can choose S-Corporation taxation. An S-Corporation can be less formal than forming an LLC and doesn’t normally provide the same protection. Also, unlike LLC, S-Corporation in Arizona doesn’t provide the same protections entrepreneurs seek from an LLC. It’s important to consider your options when launching a business from a legal and tax point of view.

It is better to consult a legal professional before you set up an LLC or S-corp. We shared basic differences and how you can form an LLC and S-corp. But it is always recommended to consult a professional before making any decision.

LLCBuddy Editorial Team

Tax Difference Between Arizona LLC and S-Corp in Arizona

There is a difference between LLC and S-Corporation when it comes to paying taxes. Based on Federal and State Tax differences between the two, you can determine if S-Corporation or LLC in Arizona is suitable 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 Arizona. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

Pass-Through Taxes: LLC and S-Corporation in Arizona are the same in terms of 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 are required to 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 Arizona 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 Arizona 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 scenario where you are the only owner of an LLC in Arizona with a $150,000 annual profit. And let’s say that $100,000 is a fair wage in your location for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $150,000 profit. But, if your company is taxed as a Arizona S-Corp, you will only be responsible for paying payroll taxes on the standard wage of $100,000. Income tax will still apply to the remaining $50,000.

Arizona 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 Arizona, it costs $0 that can be paid to the AZ Corporation Division. Of course, before forming the whole LLC, you must pay the initial fee of $50.

On the other hand, you also need to pay taxes if you form an S-Corporation in Arizona; besides, you must pay the S-Corp filing fee and an annual report fee after a year of establishing your S-Corp. You must also go to the AZ Corporation Division to pay this.

How do Arizona LLCs and S-Corporations Handle Liability Protection?

In Arizona, you have no personal responsibility for the financial and legal liabilities of an LLC you will form. An S-Corporation does not provide liability protection because it is a tax designation rather than a distinct business entity. Whatever liability defense an S-Corporation provides is provided by the underlying business entity that chose the tax status. You will have the liability protection the LLC offers if it chooses S-Corporation status for tax purposes.

LLC Vs. S Corporation Ownership Requirements Comparison

Strict ownership requirements exist for LLCs and S-Corporations in Arizona. LLC ownership regulations are strict because a new member can only be accepted with the approval of all existing members. On the other hand, S-Corporation ownership regulations are also strict because only specific people are permitted to become shareholders. Also, an S-Corporation can’t have more than 100 shareholders and needs one class of stock.

The following are the reasons why some cannot be shareholders in the S-Corporation in Arizona.

  • Insurance business
  • Domestic and International sales corporations
  • Partnerships
  • Corporations
  • Unauthorized Immigrants
  • Certain financial institutions

Although you know most of the reasons regarding the ownership requirements of both LLC and S-Corporation, you should still seek legal advice in preparation for your business and it is best to visit LLCBuddy for your Arizona LLC or Arizona S-Corp.

Which is Easier to File in Arizona: LLCs or S-Corporations?

Filing an LLC or S-Corporation in Arizona takes time and preparation. Even though it is not as easy as it seems, something manageable still makes it not difficult. LLC and S-Corporation can be filed by Arizona Statutory Agent. However, in order to establish an LLC in Arizona, you must submit a Articles of Organization to the Arizona Department of Revenue. Your Articles of Organization must contain information for your LLC, along with payment of the associated filing fee.

In addition, you need to submit more papers to make the Arizona S-Corporation election. File a Form 8832 to inform the Internal Revenue Sector (IRS) that you prefer to tax your LLC as a corporation rather than a partnership. Then you will then submit Form 2553 to choose S-Corporation status.

Do not forget that you must submit annual tax returns and reports after creating your LLC in order to maintain legal compliance.

Important Information

Who Pays More Taxes, an LLC or S-Corporation?

Taxes differ for LLC and S-Corporation in Arizona because it depends on the tax purposes and how much profit will be generated. Usually, LLCs are frequently taxed at personal rates and LLC owners can elect to be treated as a separate company with its own federal tax identification number.

On the other hand, owners of S-Corporations must receive a salary that includes Social Security and Medicare taxes. The owner, however, can get dividend income or some of the leftover profits, but not as an employee; thus, they won’t be subject to Social Security and Medicare taxes on that money.

Should I Convert an LLC to S-Corporation?

Since your business assets are separated from your personal assets if you’re a sole proprietor, it may be advisable to form an LLC. You are not restricted to modifying the structure of your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and adhere to more regulations, it would be ideal for more companies with more shareholders.

How to Structure an LLC to S-Corporation?

To structure an LLC to S-Corporation in Arizona, you must submit Form 2553, Election by a Small Business Corporation, to the IRS in order to choose S-corp taxation. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In Arizona, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .

FAQs

What are the differences between an LLC and an S-Corp in Arizona?
An LLC in Arizona is a limited liability company that offers its members personal liability protection and limited taxation. An S-Corp is a corporation that allows profits and losses to be passed through to its shareholders, avoiding double taxation.
What is the filing requirement for an LLC in Arizona?
An LLC in Arizona must file Articles of Organization with the Arizona Corporation Commission.
What is the filing requirement for an S-Corp in Arizona?
An S-Corp in Arizona must file Articles of Incorporation with the Arizona Corporation Commission.
What are the tax benefits of an LLC in Arizona?
An LLC in Arizona provides its members with personal liability protection and limited taxation. Depending on the size of the business, an LLC can be taxed as a disregarded entity, as a partnership, or as a corporation.
What are the tax benefits of an S-Corp in Arizona?
An S-Corp in Arizona provides shareholders with the benefit of pass-through taxation, which avoids double taxation. The S-Corp’s profits and losses are passed through to its shareholders, who then claim the income or losses on their individual tax returns.
How much does it cost to form an LLC in Arizona?
The filing fee for an LLC in Arizona is $50.
How much does it cost to form an S-Corp in Arizona?
The filing fee for an S-Corp in Arizona is $50.
How long does it take to form an LLC in Arizona?
The Arizona Corporation Commission typically processes LLC filings within 5-7 business days.
How long does it take to form an S-Corp in Arizona?
The Arizona Corporation Commission typically processes S-Corp filings within 5-7 business days.
Who is responsible for filing taxes for an LLC in Arizona?
An LLC in Arizona is typically taxed as a disregarded entity, in which case the LLC’s taxes are reported on the individual tax return of the LLC’s owner.
Who is responsible for filing taxes for an S-Corp in Arizona?
An S-Corp in Arizona is responsible for filing its own corporate tax return and providing its shareholders with a Schedule K-1 form to report their individual share of the S-Corp’s profits and losses.
What paperwork is required for an LLC to do business in Arizona?
An LLC in Arizona must file Articles of Organization with the Arizona Corporation Commission and obtain an Arizona employer identification number (EIN) from the Internal Revenue Service (IRS).
What paperwork is required for an S-Corp to do business in Arizona?
An S-Corp in Arizona must file Articles of Incorporation with the Arizona Corporation Commission, obtain an Arizona employer identification number (EIN) from the Internal Revenue Service (IRS), and adopt corporate bylaws.
Can an LLC in Arizona have more than one owner?
Yes, an LLC in Arizona can have multiple owners, also known as members.
Can an S-Corp in Arizona have more than one owner?
Yes, an S-Corp in Arizona can have multiple owners, also known as shareholders.
How does an LLC in Arizona protect the owners from personal liability?
The LLC’s owners are protected from personal liability for debts and other liabilities of the LLC. This means that the LLC’s creditors cannot pursue the LLC’s owners for any payments owed by the LLC.
How does an S-Corp in Arizona protect the owners from personal liability?
The S-Corp’s shareholders are protected from personal liability for debts and other liabilities of the S-Corp. This means that the S-Corp’s creditors cannot pursue the S-Corp’s shareholders for any payments owed by the S-Corp.
Can an LLC in Arizona issue stock?
No, an LLC in Arizona cannot issue stock as it is not a corporation.
Can an S-Corp in Arizona issue stock?
Yes, an S-Corp in Arizona can issue stock to its shareholders.
What is the benefit of having an LLC in Arizona?
The primary benefit of having an LLC in Arizona is the limited liability protection that it provides to its members. Additionally, an LLC can be taxed as a disregarded entity, as a partnership, or as a corporation, providing flexibility in how the LLC is taxed.
What is the benefit of having an S-Corp in Arizona?
The primary benefit of having an S-Corp in Arizona is the pass-through taxation that it provides to its shareholders. Additionally, an S-Corp can issue stock to its shareholders, and provide the benefit of limited liability protection.
Are there any restrictions on who can own an LLC in Arizona?
There are no restrictions on who can own an LLC in Arizona, as long as the owners are of legal age.
Are there any restrictions on who can own an S-Corp in Arizona?
There are no restrictions on who can own an S-Corp in Arizona, as long as the owners are of legal age. However, an S-Corp can have no more than 100 shareholders.
Is it necessary to have an operating agreement for an LLC in Arizona?
While it is not legally required, it is recommended to have an operating agreement for an LLC in Arizona in order to set forth the rights and responsibilities of all members.
Is it necessary to have an operating agreement for an S-Corp in Arizona?
While it is not legally required, it is recommended to have an operating agreement for an S-Corp in Arizona in order to set forth the rights and responsibilities of all shareholders.
Can an LLC in Arizona be owned by another business entity?
Yes, an LLC in Arizona can be owned by another business entity.
Can an S-Corp in Arizona be owned by another business entity?
Yes, an S-Corp in Arizona can be owned by another business entity.
What is the difference between an LLC and an S-Corp in Arizona?
An LLC in Arizona is a type of business entity that offers flexibility and benefits for owners including liability protection, pass-through taxation, and few formalities. An S-Corp is a type of corporation that offers the same liability protection and pass-through taxation as an LLC, but with additional formalities like corporate governance requirements, shareholder agreements, and annual meetings.
What are the advantages of forming an LLC in Arizona?
The advantages of forming an LLC in Arizona include liability protection, pass-through taxation, flexible management structures, and few formalities.
What are the advantages of forming an S-Corp in Arizona?
The advantages of forming an S-Corp in Arizona include liability protection, pass-through taxation, additional formalities like corporate governance requirements, shareholder agreements, and annual meetings, and the ability to receive certain tax benefits.
Do I need to register my LLC or S-Corp in Arizona?
Yes, you need to register your LLC or S-Corp in Arizona with the Arizona Corporation Commission.
Does my LLC or S-Corp in Arizona need to pay taxes?
Yes, your LLC or S-Corp in Arizona will need to pay taxes on their income, as well as applicable state taxes.
What are the requirements for maintaining an LLC or S-Corp in Arizona?
The requirements for maintaining an LLC or S-Corp in Arizona include filing an annual report with the Arizona Corporation Commission, paying any applicable taxes, and complying with all applicable state laws.
Are there any restrictions on LLCs or S-Corps in Arizona?
Yes, there are restrictions on LLCs and S-Corps in Arizona including the number of shareholders, the type of business activities allowed, and any applicable restrictions on foreign ownership.

Also Read

Why Arizona LLC Vs S Corp is So Important

First and foremost, forming an LLC or an S Corp can provide liability protection for business owners. This means that business owners are not personally responsible for the debts or liabilities of the company. In the event of a lawsuit or bankruptcy, personal assets such as homes and cars are typically shielded from creditors.

However, there are differences in the way LLCs and S Corps are taxed. LLCs are considered pass-through entities, which means that the profits and losses of the business are passed on to the individual owners and reported on their personal tax returns. This can be advantageous for smaller businesses that want to avoid double taxation.

On the other hand, S Corps also offer pass-through taxation, but with an added benefit. S Corps can provide business owners with the opportunity to save on self-employment taxes. This is because S Corps allow business owners to split their income into salary and distributions, with only the salary portion subject to self-employment taxes.

Another difference between LLCs and S Corps lies in the management structure. LLCs offer greater flexibility in terms of management, allowing for a more informal and customizable management structure. Members of an LLC can choose to have a manager-managed or member-managed LLC, depending on their preferences.

In contrast, S Corps have stricter management regulations, with requirements for a board of directors, officers, and regular meetings. While this can offer more formal structure and division of responsibilities within the company, it can also add an additional layer of complexity and administrative burden.

Additionally, there are differences in the ownership requirements for LLCs and S Corps. LLCs allow for a more diverse ownership structure, with members being individuals, corporations, or other LLCs. S Corps, on the other hand, have restrictions on ownership – only individuals and certain trusts can be shareholders of an S Corp.

Ultimately, the choice between forming an LLC or an S Corp will depend on various factors such as the size and structure of your business, your long-term goals, and your tax considerations. Consulting with a legal or financial advisor can help you make an informed decision based on your specific circumstances.

In conclusion, choosing between an Arizona LLC and an S Corp is a critical decision for any new business owner. Both legal structures offer distinct advantages and disadvantages, and understanding the differences between them is essential for making the right choice. By carefully considering the taxation, liability protection, management structure, and ownership requirements of each option, you can set your business up for success in the long run.

Conclusion

Even though you can choose a different corporate structure, consider whether it will primarily assist your organization. Striking the perfect balance between corporate benefits and legal protection that suits your particular needs is important. In forming an LLC or S-Corp in Arizona, you must be aware that every detail is well-formed so that starting your business will be successful. And, if you would like us to help you form a Arizona LLC and S-Corp in Arizona, read our other business guides.

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