An LLC and a corporation are taxed differently since the structures of the two types of businesses are regarded as distinct. The income of the LLC is passed through to the personal owners of the company who are taxed on a personal level while the corporations' profits accrued annually are taxed at the business level. That means that there could be cases of double taxation of the corporations where both the business and its owners are taxed. Secondly, the owners of a corporation are taxed only on the money that they receive as dividends from the company while the owners of an LLC are taxed on the share of the profits regardless of whether they receive the money of it stays in business (Clarke & Kopczuk, 2017).
One of the drawbacks of forming an LLC is that this type of business may be more expensive to start than either the sole proprietorship or the partnership businesses. The costs may discourage startup. The other disadvantage of forming an LLC is that the owners of the company may confuse between the records of the business and their records such as in valuing the businesses or conforming to the taxation rules. The other setback of forming an LLC is that in the payment of taxes, a business owner has to pay unemployment taxes by his or her own. That is different in the sole proprietorship businesses or partnerships (Blair & Marcum, 2015).
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If I were in Anna and Caleb's position, I would choose to create an LLC. An LLC exempts the business from double taxation, which takes place in a corporation. In a corporation, double taxation may lead to the financial retardation of new business since it has not yet already established itself. Besides, an LLC will give them an opportunity to run their business and maximize growth concerning them being taxed only once. They will also incur fewer costs in the startup than they would when creating a corporation (Mancuso, 2016).
References
Blair, E. S., & Marcum, T. M. (2015). Heed our advice: Exploring how professionals guide small
Business owners in start ‐ up entity choice. Journal of Small Business Management , 53 (1), 249-265.
Clarke, C., & Kopczuk, W. (2017). Business Income and Business Taxation in the United States
Since the 1950s. Tax Policy and the Economy , 31 (1), 121-159.
Mancuso, A. (2016). LLC Or Corporation?: Choose the Right Form for Your Business . Nolo.
