Right now, the LLC generally is the most preferred method of incorporation and you should check with your Lawyer if that is true for your specific state. The LLC does not require a minimum tax as in the case of a C or S Corporations for less than 3 members or owners. The LLC owners are not required to take a salary, however, their their net income would flow through to its owners and would subject it all to both the shareholders ordinary tax rate and the self-employment taxes.
Now, if you incorporate as a C-Corporation and then convert to an S-Corporation, than yes, the IRS requires that you should take a reasonable salary that is reported on a W-2!
Clearly, the advantage of an S-Corporation is that some of the income that would not be included in the salary of the officer would be considered as "pass-through" income. This "pass-through" income would flow to the you, the shareholder, without subjecting you to the Self-Employment taxes.
In addition, the S Corporation affords the same liability protection as a C-Corporation. Now, the officers generally receive similar liability protection in the C, S or LLC. So, I don't think that factor will result in your choice of entity as all the entities will provide the same degree of liability protection to its officers. |