LLC vs S-Corp in Indiana


Steve Goldstein
Steve Goldstein
Business Formation Expert
Steve Goldstein 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 Indiana

Making choices as an entrepreneur is a big challenge, especially when choosing what business structure to form in Indiana. When it comes to a business structure, you can choose whether to have a C-corporation, S-corporation, Sole Proprietorship or an LLC in Indiana. Before you start Indiana 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 Indiana 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 Indiana.

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 Indiana?

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 Indiana 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 Indiana?

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 Indiana?

In Indiana, forming a business is crucial since you need to be adequate in your decision, especially when you think if Indiana LLC or an S-Corporation in Indiana 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 Indiana 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 Indiana LLC and S-Corp in Indiana

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

Pass-Through Taxes: LLC and S-Corporation in Indiana 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 Indiana 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 Indiana 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 Indiana 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 Indiana 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.

Indiana 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 Indiana, it costs $0 because it is not mandatory that can be paid to the IA Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $100 (by mail and $95 online).

On the other hand, you also need to pay taxes if you form an S-Corporation in Indiana; 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 IA Secretary of State to pay this.

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

In Indiana, 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 Indiana. 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 Indiana.

  • 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 Indiana LLC or Indiana S-Corp.

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

Filing an LLC or S-Corporation in Indiana 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 Indiana Registered Agent. However, in order to establish an LLC in Indiana, you must submit a Articles of Organization to the Indiana Secretary of State. 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 Indiana 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 Indiana 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 Indiana, 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 Indiana, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.

FAQs

What is the difference between an LLC and an S-Corp in Indiana?
An LLC in Indiana is a non-taxable entity that offers limited liability protection to its owners, known as members. An S-Corp is a pass-through entity that is taxed as a corporation, but offers the same limited liability protection to its owners, known as shareholders.
What are the advantages of forming an LLC in Indiana?
One of the main benefits of an LLC in Indiana is the limited liability protection it provides to its members. Additionally, LLCs are relatively easy to set up and maintain and have flexible management structures.
What are the advantages of forming an S-Corp in Indiana?
S-Corps are slightly more complex to set up and maintain than LLCs, but they offer the same limited liability protection to their shareholders. Additionally, S-Corps are taxed as a corporation, meaning they can take advantage of corporate tax deductions.
Are LLCs subject to corporate taxes in Indiana?
No, LLCs in Indiana are not subject to corporate taxes.
Do S-Corps in Indiana need to pay federal income taxes?
Yes, S-Corps in Indiana are subject to federal income taxes.
Do LLCs in Indiana need to file annual reports?
Yes, all LLCs in Indiana must file annual reports with the Indiana Secretary of State.
Do S-Corps in Indiana need to file annual reports?
Yes, all S-Corps in Indiana must file annual reports with the Indiana Secretary of State.
Do LLCs in Indiana need to pay unemployment taxes?
Yes, LLCs in Indiana are required to pay unemployment taxes.
Do S-Corps in Indiana need to pay unemployment taxes?
Yes, S-Corps in Indiana are required to pay unemployment taxes.
How do LLCs in Indiana pay income taxes?
LLCs in Indiana are not subject to corporate taxes, but their members must pay income taxes on their portion of the profits of the LLC.
How do S-Corps in Indiana pay income taxes?
S-Corps in Indiana are taxed as corporations, meaning they are subject to corporate income taxes. The shareholders of the S-Corp must also pay income taxes on their portion of the profits of the S-Corp.
Do LLCs in Indiana need to pay a franchise tax?
No, LLCs in Indiana are not required to pay a franchise tax.
Do S-Corps in Indiana need to pay a franchise tax?
Yes, S-Corps in Indiana are required to pay a franchise tax.
How is an LLC in Indiana dissolved?
An LLC in Indiana can be dissolved by filing a Certificate of Dissolution with the Indiana Secretary of State.
How is an S-Corp in Indiana dissolved?
An S-Corp in Indiana can be dissolved by filing a Certificate of Dissolution with the Indiana Secretary of State and revoking their S-Corp status with the IRS.
Do LLCs in Indiana need to hold annual meetings?
No, LLCs in Indiana are not required to hold annual meetings.
Do S-Corps in Indiana need to hold annual meetings?
Yes, S-Corps in Indiana are required to hold annual meetings of their shareholders and directors.
What type of liability protection do LLCs in Indiana offer?
LLCs in Indiana offer limited liability protection to their members, meaning that the members’ personal assets are generally not at risk in the event the LLC is sued.
What type of liability protection do S-Corps in Indiana offer?
S-Corps in Indiana offer the same limited liability protection to their shareholders as LLCs do to their members.
Do LLCs in Indiana need to register with the state?
Yes, all LLCs in Indiana must register with the Indiana Secretary of State.
Do S-Corps in Indiana need to register with the state?
Yes, all S-Corps in Indiana must register with the Indiana Secretary of State and must also obtain an S-Corp status from the IRS.
Can an LLC in Indiana hire employees?
Yes, LLCs in Indiana can hire employees.
Can an S-Corp in Indiana hire employees?
Yes, S-Corps in Indiana can hire employees.
Does an LLC in Indiana need to have a written operating agreement?
Yes, all LLCs in Indiana must have a written operating agreement that outlines the rules, regulations, and procedures of the LLC.
Does an S-Corp in Indiana need to have a written operating agreement?
No, an S-Corp in Indiana does not need to have a written operating agreement.
Do LLCs in Indiana need to have a board of directors?
No, LLCs in Indiana do not need to have a board of directors.
Do S-Corps in Indiana need to have a board of directors?
Yes, all S-Corps in Indiana must have a board of directors.
Are LLCs in Indiana required to pay state income taxes?
No, LLCs in Indiana are not required to pay state income taxes.
Are S-Corps in Indiana required to pay state income taxes?
Yes, S-Corps in Indiana are subject to state income taxes.
What are the benefits of an S-Corp in Indiana?
An S-Corp in Indiana can provide several benefits, including liability protection, pass-through taxation, and the ability to deduct health insurance premiums.
What are the benefits of an LLC in Indiana?
An LLC in Indiana provides several benefits, including limited liability protection, flexibility in how to structure the entity, and pass-through taxation.
Are there any additional fees associated with forming an LLC in Indiana?
Yes, you will need to pay the Indiana Secretary of State a $90 filing fee when forming an LLC in Indiana.
Is there a minimum number of members required to form an S-Corp in Indiana?
Yes, an S-Corp in Indiana must have at least one member or shareholder.

Also Read

Why Indiana LLC Vs S Corp is So Important

One of the main reasons why understanding the differences between an Indiana LLC and an S Corp is so essential is due to the varying legal and tax implications of each structure. While both LLCs and S Corps offer limited liability protection for their owners, they have different tax treatments that can significantly impact the company’s bottom line.

For example, an Indiana LLC is a pass-through entity, which means that the company’s profits and losses flow through to the owners’ individual tax returns. This can be advantageous for owners who want to avoid double taxation since they only have to pay personal income tax on their share of the profits.

On the other hand, an S Corp also offers pass-through taxation, but with an additional level of complexity. S Corp owners must pay themselves a reasonable salary, which is subject to employment taxes, before they can distribute any additional profits to themselves. This can be an added burden for owners who prefer the simplicity of an Indiana LLC’s tax treatment.

Aside from tax implications, the choice between an Indiana LLC and an S Corp can also depend on the business’s specific needs and goals. For example, an S Corp may be more suitable for companies with plans for rapid growth and the potential to attract outside investors. S Corps also have specific ownership restrictions, such as having no more than 100 shareholders who are U.S. residents, which can be a limiting factor for some businesses.

On the other hand, an Indiana LLC is more flexible in terms of ownership structure and management, making it an attractive option for smaller businesses with few owners who want to maintain control over the decision-making process. Additionally, LLCs do not have the same formal requirements for record-keeping and annual meetings as S Corps, which can save time and money for busy entrepreneurs.

Ultimately, the decision between an Indiana LLC and an S Corp should be based on a thorough evaluation of the company’s anticipated growth, ownership structure, and tax implications. Consulting with a legal and financial advisor can help business owners navigate the complexities of each option and make an informed decision that aligns with their goals and priorities.

In conclusion, understanding the differences between an Indiana LLC and an S Corp is crucial for entrepreneurs looking to establish a solid legal and tax foundation for their business. By weighing the benefits and drawbacks of each structure, business owners can make an informed decision that sets their company 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 Indiana, 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 Indiana LLC and S-Corp in Indiana, read our other business guides.

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