Corporation vs. LLC?

Question: I’m a freelancer and I’ve decided to incorporate – make it official and become a company, for real! Which is better, choosing to form a corporation or an LLC?


Answer from Richard M. Prinzi, Jr., CPA & Co-Founder of F-Sharp Tax Services:


Lots of confusion here, let’s start by ending this debate: Tax professionals who specialize in freelancers do not care if you choose to be an LLC or Corporation. Either way you will elect to be taxed as an S-Corporation. If your tax professional is pushing you either way, they do not have the experience necessary to serve you. Strictly from a tax perspective, it is irrelevant. The type of formation is driven by legal and funding concerns, not tax. There is no tax code for an LLC. As an LLC, the owners must choose between being taxed as a sole proprietor (individual), partnership or a corporation.


My West Coast clients seem to favor LLC’s and the East Coast mostly form as S-Corporations. The movie industry has a unique process for raising money to produce a film. In many cases they will take on several rounds of investors with different agreements. This structure favors the more modern advantages an LLC has to offer. Because of the popularity with the big players in the movie industry, and the similar cost of formation, LLC’s are more popular with professionals in that field. In NY, unless you are producing a Broadway play, the LLC costs more to form, so most choose to go with the cheaper option, which is the S-Corporation. An LLC is required to publish its formation in two local newspapers. California does not require the publication. No state requires a Corporation to publish.


In most cases, the S-Corporation is the right choice.


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