LLC vs S-Corp in Maryland


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.

All Posts by Steve Goldstein →
Business Formation Expert  |   Fact Checked by Editorial Staff
Last updated: 
LLCBuddy™ offers informative content for educational purposes only, not as a substitute for professional legal or tax advice. We may earn commissions if you use the services we recommend on this site.
At LLCBuddy, we don't just offer information; we provide a curated experience backed by extensive research and expertise. Led by Steve Goldstein, a seasoned expert in the LLC formation sector, our platform is built on years of hands-on experience and a deep understanding of the nuances involved in establishing and running an LLC. We've navigated the intricacies of the industry, sifted through the complexities, and packaged our knowledge into a comprehensive, user-friendly guide. Our commitment is to empower you with reliable, up-to-date, and actionable insights, ensuring you make informed decisions. With LLCBuddy, you're not just getting a tutorial; you're gaining a trustworthy partner for your entrepreneurial journey.
LLC vs. S Corp in Maryland

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

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 Maryland?

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 Maryland 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 Maryland?

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 Maryland?

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

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

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

Maryland 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 Maryland, it costs $300 that can be paid to the MA Sec. of the Commonwealth. Of course, before forming the whole LLC, you must pay the initial fee of $100.

On the other hand, you also need to pay taxes if you form an S-Corporation in Maryland; 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 MA Sec. of the Commonwealth to pay this.

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

In Maryland, 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 Maryland. 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 Maryland.

  • 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 Maryland LLC or Maryland S-Corp.

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

Filing an LLC or S-Corporation in Maryland 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 Maryland Resident Agent. However, in order to establish an LLC in Maryland, you must submit a Articles of Organization to the Maryland Department of Assessments and Taxation. 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 Maryland 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 Maryland 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 Maryland, 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 Maryland, 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 advantages of forming an LLC in Maryland?
LLCs in Maryland offer limited liability protection for members, flexibility in management structure, no requirement for a board of directors, and few formal paperwork requirements.
What are the advantages of forming an S-Corp in Maryland?
S-Corps in Maryland receive the same limited liability protection as an LLC, as well as potential tax savings through pass-through taxation. Additionally, S-Corps have the potential to attract investors, and can issue stock shares.
How do I know which entity is right for me?
Ultimately, it depends on your specific business needs and goals. Consider factors like liability protection, management structure, paperwork requirements, potential tax savings, and ability to attract investors when deciding which entity is best for you.
How do I form an LLC in Maryland?
To form an LLC in Maryland, you must file a Certificate of Formation with the Maryland Department of Assessments and Taxation (SDAT). You must also appoint a registered agent and create an Operating Agreement for your LLC.
How do I form an S-Corp in Maryland?
To form an S-Corp in Maryland, you must file a Certificate of Incorporation with the Maryland Department of Assessments and Taxation (SDAT). You must also appoint a registered agent, create bylaws and issue stock certificates, and file Form 2553 with the IRS.
How long does it take to form an LLC or S-Corp in Maryland?
It typically takes 1-2 weeks to form an LLC or S-Corp in Maryland.
What are the annual filing requirements for an LLC in Maryland?
LLCs in Maryland must file an annual report with the Maryland Department of Assessments and Taxation (SDAT). This report is due by March 1st and must include the payment of an annual franchise tax.
What are the annual filing requirements for an S-Corp in Maryland?
In addition to filing an annual report with the Maryland Department of Assessments and Taxation (SDAT), S-Corps in Maryland must also file Form 1120S with the IRS. This form is due by March 15th and must include the payment of estimated taxes.
Are there any other taxes I need to be aware of in Maryland?
Depending on your business activities, you may be required to pay additional taxes, such as sales and use tax, payroll tax, or personal property tax. Additionally, some Maryland counties and municipalities may have additional taxes. It is important to research all relevant taxes that may apply to your business.
What is the difference between an LLC and an S-Corp in Maryland?
The main difference between an LLC and an S-Corp in Maryland is that an LLC is a separate legal entity from its owners, whereas an S-Corp is not a separate legal entity from the owners, who are referred to as shareholders. Additionally, an S-Corp is subject to certain rules from the Internal Revenue Service (IRS) that an LLC is not.
What are the advantages and disadvantages of forming an LLC vs an S-Corp in Maryland?
The main advantage of forming an LLC in Maryland is that it offers limited liability protection, meaning that the owners’ personal assets are protected from business debts and liabilities. An S-Corp also offers limited liability protection and has the additional advantage of potentially allowing its shareholders to pay themselves through dividends and lower their overall tax burden. A disadvantage of an S-Corp is that it is subject to more paperwork and regulation than an LLC.
Are there any special requirements for forming an S-Corp in Maryland?
Yes, there are special requirements for forming an S-Corp in Maryland. All shareholders must be US citizens or legal residents, and the company must have fewer than 100 shareholders. Additionally, the company must file a special tax form with the IRS and the state of Maryland.
Are LLCs and S-Corps in Maryland subject to the same taxes?
No, LLCs and S-Corps in Maryland are subject to different taxes. LLCs are generally subject to self-employment taxes, whereas S-Corps are generally subject to corporate taxes. Additionally, LLCs may be required to pay estimated taxes, whereas S-Corps are not.
Are LLCs and S-Corps in Maryland treated similarly for legal purposes?
No, LLCs and S-Corps in Maryland are treated differently for legal purposes. An LLC is considered its own legal entity, whereas an S-Corp is not; rather, it is considered an extension of its shareholders. Additionally, an LLC is not subject to the same rules and regulations that an S-Corp is.
What is an LLC in Maryland?
An LLC in Maryland is a limited liability company, which is a type of business entity that provides its owners with limited personal liability for the company’s debts and obligations.
What is an S-Corp in Maryland?
An S-Corp in Maryland is a Subchapter S Corporation, which is a type of corporation that is eligible to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes.
What are the advantages of an LLC in Maryland?
LLCs in Maryland provide their owners with limited personal liability and the ability to pass-through taxation.
What are the advantages of an S-Corp in Maryland?
S-Corps in Maryland offer the benefits of limited personal liability and the ability to pass-through taxation, as well as the potential to save on self-employment taxes.
What are the disadvantages of an LLC in Maryland?
The primary disadvantage of an LLC in Maryland is that it may be subject to double taxation if the LLC chooses to be taxed as a corporation.
What are the disadvantages of an S-Corp in Maryland?
The primary disadvantages of an S-Corp in Maryland are the more stringent corporate formalities that must be observed, as well as the potential for more complex tax filings.
Are LLCs in Maryland allowed to issue stock?
No, LLCs in Maryland are not allowed to issue stock.
Are S-Corps in Maryland allowed to issue stock?
Yes, S-Corps in Maryland are allowed to issue stock.
What is the minimum number of members for an LLC in Maryland?
The minimum number of members for an LLC in Maryland is one.
What is the minimum number of shareholders for an S-Corp in Maryland?
The minimum number of shareholders for an S-Corp in Maryland is one.
Can an LLC in Maryland have foreign members/managers?
Yes, an LLC in Maryland can have foreign members/managers.
Can an S-Corp in Maryland have foreign shareholders?
Yes, an S-Corp in Maryland can have foreign shareholders.
What are the requirements for forming an LLC in Maryland?
The requirements for forming an LLC in Maryland include filing a Certificate of Formation with the Maryland Department of Assessments and Taxation, selecting a registered agent within the state, and creating an Operating Agreement.
What are the requirements for forming an S-Corp in Maryland?
The requirements for forming an S-Corp in Maryland include filing an Articles of Incorporation with the Maryland Department of Assessments and Taxation, selecting a registered agent within the state, and creating bylaws.
What are the taxation rules for an LLC in Maryland?
LLCs in Maryland are typically taxed as pass-through entities, meaning that the profits and losses are passed through to the owners and reported on their individual tax returns.
What are the taxation rules for an S-Corp in Maryland?
S-Corps in Maryland are typically taxed as pass-through entities, meaning that the profits and losses are passed through to the shareholders and reported on their individual tax returns.
Is an LLC in Maryland allowed to run a professional practice?
Yes, an LLC in Maryland is allowed to run a professional practice.
Is an S-Corp in Maryland allowed to run a professional practice?
Yes, an S-Corp in Maryland is allowed to run a professional practice.

Also Read

Why Maryland LLC Vs S Corp is So Important

Maryland, like many other states, allows businesses to choose between forming an LLC or an S Corp. Each option comes with its own set of advantages and disadvantages, and it’s important to carefully consider which structure is best suited for your specific needs.

One of the main reasons why choosing between an LLC and an S Corp is so important is the issue of taxes. While both structures offer pass-through taxation, where profits and losses are reported on the owners’ personal tax returns, they differ in terms of how they are taxed. LLCs are generally subject to self-employment taxes on all income, whereas S Corps offer the possibility of reducing self-employment tax liability by paying owners a reasonable salary and distributing the rest of the profits as dividends.

Another important factor to consider is the level of complexity and administrative burden associated with each structure. LLCs are generally simpler to set up and maintain, with less stringent formalities and reporting requirements. On the other hand, S Corps are subject to more regulations and oversight, which can be a drawback for some business owners.

In addition to taxes and administrative requirements, another consideration when choosing between an LLC and an S Corp is the flexibility they offer in terms of ownership and management. LLCs allow for a more flexible ownership structure, with the ability to have multiple classes of membership interests and easily transfer ownership. S Corps, on the other hand, are limited to 100 shareholders and have stricter rules about who can own shares.

The liability protection offered by both LLCs and S Corps is also a crucial factor to consider. Both structures shield business owners from personal liability for business debts and obligations, but the extent of this protection can vary. In some cases, S Corps may offer greater protection than LLCs, as long as certain corporate formalities are followed.

Ultimately, the decision between forming a Maryland LLC vs an S Corp will depend on your specific business goals and circumstances. It’s important to carefully weigh the advantages and disadvantages of each structure, and consult with a legal or financial professional if necessary. By choosing the right entity for your business, you can help ensure its long-term success and protect your personal assets.

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

Leave a Comment