LLC vs S-Corp in New Jersey


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 New Jersey

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

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 New Jersey?

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 New Jersey 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 New Jersey?

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 New Jersey?

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

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

Pass-Through Taxes: LLC and S-Corporation in New Jersey 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 New Jersey 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 New Jersey 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 New Jersey 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 New Jersey 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.

New Jersey 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 New Jersey, it costs $75 that can be paid to the NM Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $125 (by mail and online).

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

How do New Jersey LLCs and S-Corporations Handle Liability Protection?

In New Jersey, 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 New Jersey. 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 New Jersey.

  • 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 New Jersey LLC or New Jersey S-Corp.

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

Filing an LLC or S-Corporation in New Jersey 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 New Jersey Registered Agent. However, in order to establish an LLC in New Jersey, you must submit a Certificate of Formation to the New Jersey Division of Revenue and Enterprise Services. Your Certificate of Formation 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 New Jersey 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 New Jersey 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 New Jersey, 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 New Jersey, 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 an LLC in New Jersey?
An LLC in New Jersey offers limited liability protection, pass-through taxation, and flexibility in management and structure.
What are the benefits of an S-Corp in New Jersey?
An S-Corp in New Jersey offers limited liability protection, pass-through taxation, reduction of self-employment taxes, and potential long-term savings and tax advantages.
What are the requirements for forming an LLC in New Jersey?
To form an LLC in New Jersey, you must file a Certificate of Formation with the Division of Revenue and Enterprise Services, pay the applicable filing fees, and have at least one member.
What are the requirements for forming an S-Corp in New Jersey?
To form an S-Corp in New Jersey, you must file a Certificate of Incorporation with the Division of Revenue and Enterprise Services, pay the applicable filing fees, have at least one shareholder, and submit a federal Subchapter S election.
What is the filing fee for forming an LLC in New Jersey?
The filing fee for forming an LLC in New Jersey is $125.
What is the filing fee for forming an S-Corp in New Jersey?
The filing fee for forming an S-Corp in New Jersey is $125.
How long does it take to form an LLC in New Jersey?
It typically takes about two to three weeks to form an LLC in New Jersey.
How long does it take to form an S-Corp in New Jersey?
It typically takes about two to three weeks to form an S-Corp in New Jersey.
Is there an annual fee for maintaining an LLC in New Jersey?
Yes, there is an annual fee for maintaining an LLC in New Jersey. The fee is $50 for a domestic LLC and $125 for a foreign LLC.
Is there an annual fee for maintaining an S-Corp in New Jersey?
Yes, there is an annual fee for maintaining an S-Corp in New Jersey. The fee is $50.
Are there any tax benefits to forming an LLC in New Jersey?
Yes, there are tax benefits to forming an LLC in New Jersey. For instance, LLCs in New Jersey are subject to pass-through taxation, meaning that the profits of the LLC are only taxed at the individual level.
Are there any tax benefits to forming an S-Corp in New Jersey?
Yes, there are tax benefits to forming an S-Corp in New Jersey. For instance, S-Corps in New Jersey are subject to pass-through taxation, meaning that the profits of the S-Corp are only taxed at the individual level. Additionally, S-Corps can also save on self-employment taxes.
Is there any paperwork required for an LLC in New Jersey?
Yes, there is paperwork required for an LLC in New Jersey. This includes filing a Certificate of Formation with the Division of Revenue and Enterprise Services and preparing an Operating Agreement.
Is there any paperwork required for an S-Corp in New Jersey?
Yes, there is paperwork required for an S-Corp in New Jersey. This includes filing a Certificate of Incorporation with the Division of Revenue and Enterprise Services, preparing bylaws and a corporate agreement, and submitting a federal Subchapter S election.
How is an LLC in New Jersey managed?
An LLC in New Jersey is usually managed by its members (owners) unless the Operating Agreement stipulates that the LLC will be managed by a manager.
How is an S-Corp in New Jersey managed?
An S-Corp in New Jersey is usually managed by its shareholders and/or directors.
What are the advantages and disadvantages of an LLC in New Jersey?
The advantages of an LLC in New Jersey include limited liability protection, pass-through taxation, and flexibility in management and structure. The disadvantages include potential limitations on crowdfunding, the need for an Operating Agreement, and the potential for double taxation if the LLC is not properly structured.
What are the advantages and disadvantages of an S-Corp in New Jersey?
The advantages of an S-Corp in New Jersey include limited liability protection, pass-through taxation, reduction of self-employment taxes, and potential long-term savings and tax advantages. The disadvantages include the need for a corporate agreement, the need to follow corporate formalities, and the potential for double taxation if the S-Corp is not properly structured.
How do I register an LLC in New Jersey?
To register an LLC in New Jersey, you must file a Certificate of Formation with the Division of Revenue and Enterprise Services and pay the applicable filing fees.
How do I register an S-Corp in New Jersey?
To register an S-Corp in New Jersey, you must file a Certificate of Incorporation with the Division of Revenue and Enterprise Services, pay the applicable filing fees, and submit a federal Subchapter S election.
What is the minimum number of members required to form an LLC in New Jersey?
The minimum number of members required to form an LLC in New Jersey is one.
What is the minimum number of shareholders required to form an S-Corp in New Jersey?
The minimum number of shareholders required to form an S-Corp in New Jersey is one.
Does an LLC in New Jersey need an Operating Agreement?
Yes, an LLC in New Jersey needs an Operating Agreement. The Operating Agreement outlines the management and ownership structure of the LLC, as well as the rights and obligations of the members.
Does an S-Corp in New Jersey need a corporate agreement?
Yes, an S-Corp in New Jersey needs a corporate agreement. The corporate agreement outlines the management and ownership structure of the S-Corp, as well as the rights and obligations of the shareholders.
What is the process for dissolving an LLC in New Jersey?
The process for dissolving an LLC in New Jersey is to file a Certificate of Cancellation with the Division of Revenue and Enterprise Services, pay the applicable filing fees, and notify all members and creditors of the dissolution.
What is the process for dissolving an S-Corp in New Jersey?
The process for dissolving an S-Corp in New Jersey is to file Articles of Dissolution with the Division of Revenue and Enterprise Services, pay the applicable filing fees, and notify all shareholders and creditors of the dissolution.
What are the differences between LLC and S-Corp in New Jersey?
LLCs and S-Corps are both business entities, but they differ in several important ways. LLCs are simpler to form and provide greater flexibility in management and taxation, while S-Corps provide greater personal asset protection and offer the potential for lower tax rates.
What is the cost to register an LLC or S-Corp in New Jersey?
The cost to register an LLC or S-Corp in New Jersey is between $125 and $225, depending on the type of business entity.
What are the tax implications of an LLC or S-Corp in New Jersey?
LLCs in New Jersey are subject to the state’s corporate business tax and gross income tax, while S-Corps are subject to the state’s corporate business tax, gross income tax, personal income tax, and additional taxes for certain types of income.
Do I need a registered agent for an LLC or S-Corp in New Jersey?
Yes, a registered agent is required for LLCs and S-Corps in New Jersey. The registered agent must have a physical address in the state and be authorized to accept legal documents on behalf of the business.
What is the minimum number of members for an LLC in New Jersey?
The minimum number of members for an LLC in New Jersey is one.
What is the minimum number of shareholders for an S-Corp in New Jersey?
The minimum number of shareholders for an S-Corp in New Jersey is one.
What are the requirements for operating an LLC or S-Corp in New Jersey?
LLCs and S-Corps in New Jersey must register with the state, file annual reports and other documents, maintain a registered agent, and pay applicable taxes and fees.
What are the benefits of forming an LLC or S-Corp in New Jersey?
LLCs and S-Corps in New Jersey provide liability protection for business owners, help to attract investors, and offer potential tax savings.

Also Read

Why New Jersey LLC Vs S Corp is So Important

First and foremost, the primary reason why this decision is so crucial is the legal protection and flexibility that each structure offers. A New Jersey LLC provides its members with limited liability protection, shielding their personal assets from any business debts or legal claims. This protection is vital for entrepreneurs looking to minimize personal risk while ensuring the longevity of their business endeavors.

On the other hand, an S Corp allows its owners to avoid double taxation by electing to pass profits, losses, deductions, and credits through to their personal tax returns. This pass-through taxation can result in substantial savings for business owners, especially when compared to the taxation requirements of a C Corp. However, an S Corp also imposes strict eligibility criteria, requiring a limited number of shareholders and restrictions on the type of shareholders.

Furthermore, the decision between a New Jersey LLC and an S Corp can significantly impact the management structure and operational flexibility of a business. A New Jersey LLC allows for a more informal management structure, granting members the freedom to run the business as they see fit without the need for a board of directors or regular shareholder meetings. This flexibility makes LLCs an attractive option for small businesses and startups looking to maintain autonomy over their operations.

Conversely, an S Corp requires a more formal management structure, with a board of directors overseeing significant business decisions and regular shareholder meetings to ensure proper governance. While this structure can provide additional corporate oversight and accountability, it may also entail more administrative burdens and restrictions that could deter some entrepreneurs.

Another critical factor to consider when deciding between a New Jersey LLC and an S Corp is the potential for growth and scalability. An S Corp may be more appealing for businesses with ambitions for rapid expansion and seeking outside investment. The established corporate structure and eligibility for stock issuance can make it easier for S Corps to attract investors and raise capital to fuel growth.

On the other hand, a New Jersey LLC may be the preferred option for businesses looking to maintain control and autonomy over their operations. The simplicity of the LLC structure, coupled with the flexibility to distribute profits as desired among members, can be advantageous for businesses focused on organic growth and sustainability.

In conclusion, the decision between a New Jersey LLC and an S Corp is not one to be taken lightly. The choice can profoundly impact various aspects of a business, including legal protection, taxation, management structure, and growth potential. Entrepreneurs and business owners must carefully weigh the pros and cons of each structure before making a decision that aligns with their strategic goals and long-term vision for their businesses.

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

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