For example, to the best of my knowledge, in California, LLC's are taxed on gross receipts, not net profit. Up to a certain level of gross revenue (I believe it's $200k or 250k), you pay the minimum franchise tax. But over that level, an LLC pays a measured tax on gross receipts. So as an LLC in California, you could be at breakeven or a loss, and you're still getting hit with a big tax bill for high gross receipts.

So the question of “should I form an LLC or an S-Corp?” often comes down, in California, to how much gross revenue you expect to earn. We've heard from many CPAs who actively discourage their clients from forming an LLC in California, because they feel that the client will get killed on state taxes unnecessarily.

I can't say if there is a similar situation in Washington. But you should talk to an expert locally. My recommendation is that you speak with a CPA that knows your state's tax code.

You can always Google your way to hundreds of websites that give tons of information. But I would say that you should be careful to rely on website articles for these decisions. They are writing for a broad audience, and every situation has nuance. Plus, all those sites are probably selling you something (or worse, just writing junk articles to draw in traffic and earn money running ads).

In my opinion, the best thing is always to sit down with a qualified CPA to talk about your tax issues.

To accomplish this, you'd have to take an extra step. First, after forming your entity as a Limited Liability Company, you'd have to file an IRS Form 8332 elect to be taxed as a corporation, rather than as an LLC. Then you can file the IRS Form 2553, the Election by Small Business Corporation, to be taxed an S corporation.

But I can't imagine why anyone would go to this trouble, because you end up right back at being taxed in a pass through manner. It's a big circle.

I imagine there may be a difference in taxation if there is only one LLC member (owner), in which case the entity is considered a “disregarded entity” by the IRS. In that case, there may be a distinction with S corp taxation that is important, but we've never seen anyone do that, nor ever heard a CPA recommend it.

We've seen our clients file the Form 8832, but only when they wanted the compliance simplicity of and LLC but they wish to be taxed as a *C Corp*. It's rare, but we've seen it.