LLC vs S-Corp in Kentucky


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 Kentucky

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

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 Kentucky?

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 Kentucky 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 Kentucky?

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 Kentucky?

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

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

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

Kentucky 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 Kentucky, it costs $15 that can be paid to the LA Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $40.

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

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

In Kentucky, 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 Kentucky. 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 Kentucky.

  • 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 Kentucky LLC or Kentucky S-Corp.

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

Filing an LLC or S-Corporation in Kentucky 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 Kentucky Registered Agent. However, in order to establish an LLC in Kentucky, you must submit a Articles of Organization to the Kentucky 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 Kentucky 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 Kentucky 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 Kentucky, 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 Kentucky, 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 are the benefits of forming an LLC in Kentucky?
An LLC in Kentucky is a relatively easy and inexpensive entity to form, offers limited liability protection to its members, and is not subject to corporate taxation.
What are the benefits of forming an S-Corp in Kentucky?
An S-Corp in Kentucky offers limited liability protection to its owners and shareholders, can help limit self-employment taxes, and offers flexibility for business owners in how they receive income.
What is the process for forming an LLC in Kentucky?
To form an LLC in Kentucky, you must file Articles of Organization with the Secretary of State’s Office. You must also create an operating agreement and obtain a federal employer identification number (EIN).
What is the process for forming an S-Corp in Kentucky?
To form an S-Corp in Kentucky, you must file Articles of Incorporation with the Secretary of State’s Office and obtain a federal employer identification number (EIN). You must also create a company bylaws and submit an S-Corp election form to the IRS.
What are the filing fees for an LLC in Kentucky?
The filing fee for an LLC in Kentucky is $40.
What are the filing fees for an S-Corp in Kentucky?
The filing fee for an S-Corp in Kentucky is $45.
What is the annual filing requirement for an LLC in Kentucky?
An LLC in Kentucky must file an annual report with the Secretary of State’s Office each year. The filing fee is $15.
What is the annual filing requirement for an S-Corp in Kentucky?
An S-Corp in Kentucky must file an annual report with the Secretary of State’s Office each year. The filing fee is $20.
What is the taxation structure for an LLC in Kentucky?
An LLC in Kentucky is not subject to corporate taxation; instead, the profits or losses are reported on the individual tax returns of the LLC’s members.
What is the taxation structure for an S-Corp in Kentucky?
An S-Corp in Kentucky is subject to corporate taxation, with profits and losses flowing through to the individual tax returns of the corporation’s owners.
What are the liability protection benefits of an LLC in Kentucky?
An LLC in Kentucky provides its members with limited liability protection from debts, liabilities, and legal judgments against the company.
What are the liability protection benefits of an S-Corp in Kentucky?
An S-Corp in Kentucky provides its owners and shareholders with limited liability protection from debts, liabilities, and legal judgments against the company.
How much does it cost to register an LLC in Kentucky?
The filing fee to register an LLC in Kentucky is $40.
How much does it cost to register an S-Corp in Kentucky?
The filing fee to register an S-Corp in Kentucky is $45.
Is an LLC in Kentucky subject to corporate taxation?
No, an LLC in Kentucky is not subject to corporate taxation.
Is an S-Corp in Kentucky subject to corporate taxation?
Yes, an S-Corp in Kentucky is subject to corporate taxation.
How do I dissolve an LLC in Kentucky?
To dissolve an LLC in Kentucky, you must file Articles of Dissolution with the Secretary of State’s Office.
How do I dissolve an S-Corp in Kentucky?
To dissolve an S-Corp in Kentucky, you must file Articles of Dissolution with the Secretary of State’s Office and submit an S-Corp dissolution form to the IRS.
How many members are required to form an LLC in Kentucky?
An LLC in Kentucky can be formed with one or more members.
How many shareholders are required to form an S-Corp in Kentucky?
An S-Corp in Kentucky must have at least one shareholder.
Does an LLC in Kentucky need to have an operating agreement?
Yes, an LLC in Kentucky must have an operating agreement.
Does an S-Corp in Kentucky need to have bylaws?
Yes, an S-Corp in Kentucky must have bylaws.
Does an LLC in Kentucky need to have a registered office?
Yes, an LLC in Kentucky must have a registered office in the state.
Does an S-Corp in Kentucky need to have a registered office?
Yes, an S-Corp in Kentucky must have a registered office in the state.
Does an LLC in Kentucky need to have a registered agent?
Yes, an LLC in Kentucky must have a registered agent in the state.
Does an S-Corp in Kentucky need to have a registered agent?
Yes, an S-Corp in Kentucky must have a registered agent in the state.
Do LLCs in Kentucky need to have annual meetings?
No, LLCs in Kentucky do not need to have annual meetings.
Do S-Corps in Kentucky need to have annual meetings?
Yes, S-Corps in Kentucky must have annual meetings of shareholders.
Does an LLC in Kentucky need to have an EIN?
Yes, an LLC in Kentucky must have an EIN, or federal employer identification number.
Does an S-Corp in Kentucky need to have an EIN?
Yes, an S-Corp in Kentucky must have an EIN, or federal employer identification number.

Also Read

Why Kentucky LLC Vs S Corp is So Important

One of the key reasons why the choice between a Kentucky LLC and an S Corp is so important is because it can have significant implications for the way that a business is taxed. An LLC is a more flexible structure that allows for pass-through taxation, meaning that the profits and losses of the business are passed through to the owners, who report them on their personal tax returns. This can be advantageous for small businesses, as it avoids the double taxation that can occur with a traditional corporation.

On the other hand, an S Corp also allows for pass-through taxation, but it has specific eligibility criteria that must be met in order to elect this tax treatment. One of the requirements for an S Corp is that the company can only have a certain number of shareholders, all of whom must be U.S. citizens or residents. Additionally, there are restrictions on the types of shares that can be issued and the classes of stock that can be offered. For some businesses, these limitations may be too restrictive to make an S Corp a viable option.

Another important consideration when choosing between a Kentucky LLC and an S Corp is the level of liability protection that each structure provides. An LLC offers limited liability protection, meaning that the personal assets of the owners are typically shielded from any legal claims or debts of the business. This can be crucial for protecting personal assets in the event that the company faces a lawsuit or bankruptcy.

In comparison, an S Corp also offers limited liability protection, but there is an additional layer of complexity when it comes to corporate formalities and compliance requirements. S Corps are required to hold regular board meetings, keep formal minutes of those meetings, and adhere to various other corporate governance regulations. Failing to comply with these requirements could jeopardize the limited liability protection that an S Corp provides.

Ultimately, the choice between a Kentucky LLC and an S Corp will depend on a variety of factors, including the specific needs and goals of the business, the number of owners involved, and the desired tax treatment. It is important for entrepreneurs to consult with legal and tax advisors to ensure that they fully understand the implications of each option and make an informed decision that aligns with their long-term business objectives.

In conclusion, the decision to choose a Kentucky LLC or an S Corp is a critical one that can have far-reaching implications for a small business. By carefully considering the advantages and disadvantages of each entity type, entrepreneurs can make a decision that best aligns with their unique circumstances and sets their business up for long-term success.

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 Kentucky, 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 Kentucky LLC and S-Corp in Kentucky, read our other business guides.

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