Ryan VaughnCOO of Incite Tax & Accounting. Ask me anything about your taxes.

Legal Business vs Tax Structure Recap

8 Sept 2023 · 1 min

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In this brief instructional video, the presenter explains the fundamental distinction between a legal entity and a tax status. A legal entity—such as an LLC—is created by filing with the state, while tax status (sole proprietorship, partnership, S corporation) is an IRS designation that determines how the entity’s income is reported and taxed. The speaker highlights that an LLC can elect to be taxed as any of these statuses, but becoming an S corporation requires filing a specific form with the IRS; it cannot be established at the state level. The video concludes with a reminder to consult an attorney for personalized advice and a humorous, cautionary note about the IRS.

Chapters

What is the difference between a legal entity and a tax status? Now, as always, remember to check with your attorney on your specific situation. For the sake of this video, what you have is I can set up an entity with the state, and that could be taxed under a variety of different ways. For example, if I set up an LLC, that could be taxed as a sole proprietorship, which is a tax status. It could be taxed as a partnership. It could be taxed as an S corporation. In order for it to be an S corporation, which is tax status only, I need to Let the IRS know using a form that says, I want my LLC to be taxed as an S corp. You can't go to your state and set up an S corp. It's a tax status only. Remember to like, share, comment, ask questions. We want to support you. And remember, the IRS sucks and they don't like you. I'm sorry to tell you that.