New LLC. Am I S corp or C corp?

[cjthebaptist]

Hey I just started a business. I’m still setting up accounts and formalizing paperwork. I don’t have clients yet or any income. I just had a meeting with the bank to set up the bank account. They needed to know if my business is a c or s corp. I didn’t know where to find that information, so I did some quick googling and determined that it’s probably a C. I’m not positive though and am not sure how to verify this. Any help? Thanks, y’all!

 

[georgefeege]

@cjthebaptist An LLC by default is taxed like a sole proprietor when there is only one owner. If you did not file any positive elections with the IRS, you are taxed as a sole proprietor.

Since it sounds like you did not make any elections with the IRS, you are a sole proprietor for tax purposes.

Also, find a good local CPA to advise you if a corporate election like C or S Corp could be beneficial to you. Reddit is not the place for that since we do not have a full picture of your financial situation like your own tax preparer would.

 

[cavwda]

@georgefeege This is the answer right here.

And just want to add that banks are notoriously stupid when it comes to requirements for opening an account. You can put whatever the hell you want and it doesn’t matter.

For a loan, yes it matters. To open an account it does not.

 

[cjthebaptist]

@georgefeege Hope ur willing to help me out one more time. I emailed the bank employee I met with that it seems my company is neither a c or an s, but a sole proprietor. She emailed back “Yes, it will be an S,C or partnership.” She seems to be implying that sole propriety is a type of partnership, which seems wrong in logic and my research.

 

[georgefeege]

@cjthebaptist She does not understand tax. She is incorrect here.

 

[family1stdad]

@cjthebaptist Did you make a corporate election? This would be something you actively did, by filing forms. If all you did was set up a llc, you might not be a corporation at all.

 

[cjthebaptist]

@family1stdad Just set up the LLC and obtained an EIN. That’s it.

 

[family1stdad]

@cjthebaptist Then you are not a C corp or a S corp.

 

[alpacaone]

@cjthebaptist You are an LLC. You’re not any type of corp. You can elect to be taxed like an SCorp if you wish with the appropriate filings, but you registered an LLC, not a corporation.

 

[tjh]

@cjthebaptist Did you incorporate a legal entity or did you go to the bank to open a business bank account as a sole propreitor?

 

[cjthebaptist]

@tjh The latter

 

[bsstra7]

@cjthebaptist You're not an LLC until you file as one with your state.

 

[tjh]

@cjthebaptist Yes that means you don't have a legally incorporated entity in the US. Once you incorporate an entity, you can tell the bank your entity type.

It's best to use your SSN to get a business bank account.

 

[cavwda]

@tjh Sole-prop with EIN can def open an account w/o a SSN.

 

[fernando1999]

@cavwda In fact, this is the recommended way. Less chance of screwing up your personal credit and keeps things separate. Obtain LLC paperwork from state, obtain EIN from IRS, open bank account with financial institution of your choice.

 

[tjh]

@cavwda For the sole prop to get the EIN, they have to use the SSN.

 

[cavwda]

@tjh Correct me if I’m wrong, but every entity needs a SSN to get an EIN (responsible party).

But you wouldn’t use the SSN to open the bank account. The bank account should be associated with EIN, not SSN.

 

[tjh]

@cavwda Yes that is correct. Use the SSN to get the EIN and after that use the EIN to open a US Bank account.

 

[maemi]

@cjthebaptist You are (probably) a Sole Proprietor LLC. Becoming an S-Corp is often a next step after being an LLC for a bit of time, although some people do it right away.

There are a lot of differences between being an LLC and becoming an S-Corp, but I like to think of it as the biggest difference is "who owns the money the business brings in?"

(Usually) a sole proprietor LLC sends out an invoices, and can take all the money they receive for the good or service, and put it all into their personal bank account.

When you become an S-Corp, you are now an employee of your business, and you must get your income through a W2 salary. The money earned is owned by the business, not by you. Any money you make comes to you through a salary. Owners make up for this by taking distributions, which should total less than your salary, but is also taxed substantially lower than your W2 income.

Unless you've gone through additional steps from the secretary of state and the IRS, there's a good chance that your business is still a sole proprietor LLC. It takes a conscious effort and choice to become an S or C Corp, and it's unlikely you would have gone through those steps before you were ready to do so.

 

[alongingformore]

@cjthebaptist If you don't know, you most likely are neither. You'd have to proactively sign up as one of those corps.

I'm willing to bet you're a single member LLC, aka sole proprietorship