S-Corps Vs LLCs For Camgirls and Adult Performers

Disclosure: Katy Churchill and Webcam Startup do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisers before engaging in any transaction.

Information On Taxes and Filing A Business

If you’ve spent any time on cam model forums around tax time, you’ve likely heard of S-corps and LLCs. As a self-employed online sex worker, you are technically running your own business, even if you’ve never filed for a business license or trademarked your performer name. Most models look into registering as a corporation for tax advantages, but there are also legal protections available with different types of incorporation.

Information On S-Corps

An S-corp is a corporation formed under the laws of their home state, and which file taxes under Subchapter S of Chapter 1 of the Internal Revenue Code. An S-corp must be a domestic company with fewer than 100 individuals as shareholders (non-resident aliens do not qualify as shareholders). Corporations filed under Subchapter S may pass business income, losses, deductions, and credits to their shareholders. Shareholders then report income and losses on their personal tax returns, paying tax at the appropriate individual income tax rate. S-corps combine the legal protections of C-corps with the individual income tax situation of a partnership or sole proprietorship. The “S” in “S-corp” stands for “Small Business”.

Information On LLCs

A limited liability company (LLC) is a private business structure that combines some of the legal protections of a corporation with the pass-through income taxation of a partnership or sole proprietorship. An LLC is not a corporation in and of itself; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well-known for the flexibility that they provide to business owners; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership, and, under certain circumstances, LLCs may be organized as not-for-profit. LLCs are eligible to be taxed as S-corps, providing certain conditions are met.

Similarities Between S-Corp and LLC

Limited Liability Protection – Both S-corps and LLCs are seperate legal entities from their ownerships. As such, owners are not typically held personally responsible for business debts and liabilities.

Taxation – Both are typically pass-through tax entities, meaning no income taxes are paid at the business level. Business profit or loss is passed-through to owners’ personal tax returns. Any necessary tax is reported and paid at the individual level.

Required Paperwork – Both are subject to specific record-keeping requirements, which vary by state but may include filing annual reports and submitting the appropriate renewal fees.

Differences Between S-Corp and LLC

Business Tax Returns – S-corps must file a business tax return, while LLCs only file business tax returns if the LLC has more than one owner.

Ownership – The IRS restricts S-corp ownership, but not that LLC ownership.

Subsidiaries – LLCs are allowed to have subsidiaries without restriction.

Ongoing Formalities – S-corps are required to document extensive internal formalities, including adopting bylaws and keeping corporate meeting minutes in their records. It is recommended, though not required, that LLCs follow similar formalities.

Management – S-corps have defined management structures that include directors, officers, and a board of directors. Owners of an LLC can choose to have owners or hired managers manage the LLC.
Existence. An S-corp exists until it is explicitly dissolved, but some states require LLCs to list a specific dissolution date in registration documents.

Transferability of Ownership – S-corp stock is freely transferable, as long as ownership restrictions are met. LLC ownership interest may or may not be transferable, depending on the approval of other owners.

Self-Employment Taxes – S-corps may have preferable self-employment taxes compared to the LLC because the owner can be treated as an employee and paid a reasonable salary. Corporate earnings over and above the owner’s salary may be eligible to be treated as unearned income that is not subject to self-employment taxes.

Consulting A Tax / Business Law Expert

Katy Churchill and Webcam Startup do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisers before engaging in any transaction.