LLC's are for people who don't know any better (and this includes myself, several times now in the past, having only been fully educated in this area fairly recently).
EDIT: I am also an attorney, but have never practiced. In most cases a LLC is the best way to incorporate your startup. (Unless, you know you are getting funding ASAP)
Super simple to set up, complex as hell to use.
In particular, S Corp compliance is more tedious and costly, while ownership structure is less flexible.
Why is it a ripoff? In my state (IL) it costs $250 annually to keep your LLC in good standing, while it costs $75 a year for an S-Corp.
Why is it a ripoff, reason number 2? When you form an LLC you have to spend lots of time with your lawyer hashing out things like what happens to the company when you die, if you have a partner the complexity of the operating agreement goes up exponentially. With a corp all of these things are already determined for you by a huge body of corporate law. With an LLC you are reinventing the wheel. Based on the original question this is a no-brainer for the poster, this alone is a big enough reason to scrap the LLC idea immediately.
Why is it a ripoff, reason number 3? The reason your tax guy is telling you it's a good deal is because of the pass through loss/profit which falls through to you. If you dig deep enough you will discover that an LLC really IS you for most purposes, especially if you own 100% of the shares. It is not a separate legal entity unless you have more than one shareholder (go look it up).
As far as complexity, that's bullshit. I would venture that 100% of the people who say this nonsense have no idea what you actually need to do in order to keep a corp in good standing. Yes, you need to have minutes of your annual meeting, even if it's something as simple as "the annual meeting was held over lunch and nothing of note was discussed". It is not rocket science, it's just scary when you're not familiar with it.
Now for the really big reason: if you make a profit with an LLC, you will pay self-employment tax. If you take profits with an S-corp it is dividend income (or share buybacks, etc). You WILL pay more taxes using an LLC than an S-corp simply because you have far less flexibility owing to the fact that the corp is a separate legal entity while that is an extreme grey area for an LLC. I strongly suspect this is why people are generally herded towards LLC's, simply because they are easier to track and tax than corps.
Your average CPA is useless when talking about these topics, they are used to talking about real estate tax deductions and dependents, not the intricacies of setting up a legal entity with the flexibility to deal with other legal entities, distribute shares, etc.
Costs. My state has the opposite (corps more expensive than LLCs), So this is a YMMV thing.
>Why is it a ripoff, reason number 2? When you form an LLC you have to spend lots of time with your lawyer hashing out things like what happens to the company when you die
It is almost trivial to change the LLC operating agreement. Sure, once you start to get into it, you can get more complex, but this again, is something you can do easily again later once you're sure you are sticking with this thing.
>Why is it a ripoff, reason number 3? The reason your tax guy is telling you it's a good deal is because of the pass through loss/profit which falls through to you
Only for 1 of the three ways to do LLCs. You can do LLCs as a disregarded entity (what you're talking about, which is simple as hell, but has a generally higher tax burden). You can elect to treat your LLC as a C-Corp for federal tax purposes (and state). This, for tax purposes, is basically a C corp, with all that matters under the tax law. You can elect to treat your LLC as a S-Corp (what I do). This allows you to do damn near everything you can as an actual S-Corp with oodles more flexibility, generally smaller filing fees, and a much faster setup with no annual meeting, etc, requirements.
>Now for the really big reason: if you make a profit with an LLC, you will pay self-employment tax. If you take profits with an S-corp it is dividend income (or share buybacks, etc).
Only if it's a disregarded entity. You do not pay self employment tax with a LLC taking a S-Corp election, you pay active owners a salary(on which you pay SS and medicare) and any other income is reported on schedule K (which does not trigger self employment tax; self employment tax is a stand in for SS and Medicare taxes).
> You WILL pay more taxes using an LLC than an S-corp simply because you have far less flexibility owing to the fact that the corp is a separate legal entity while that is an extreme grey area for an LLC.
No it's not. LLCs are better statutorily defined than corporations actually. They are quite clearly defined. Generally speaking, disregarded entities (what you apparently had) are considerably closer to a sole proprietorship than S-Corp and C-Corp elected LLCs. This is why I say "You should probably be doing a S or C corp LLC".
>Your average CPA is useless when talking about these topics,
You need to find a small business CPA. They know tons about this. If you go to an estate planning expert, don't expect tons of tricks in the small business department. CPAs have specialties just like coders do. You wouldn't have your ruby guru write your C microcontroller code. Same deal with accountants. I've been to two small business CPAs who both sung "S-Corp election of a LCC" from the top of the highest mountains.
The other reply to yours is detailed and refutes each of your points, so I'll just address this. If you're thinking this $175 difference is relevant, you should probably just stick with a sole proprietorship.
On seven figures of revenue, my main LLC's tax bill (company + members, the same CPA handling it all) is some $7500 a year, but would run twice that as an S corp, and about four times that as a C corp.
Before this company, the last LLC I was a member of grew to 8 figures a year in revenue as an LLC, and changed to C corp only when we took $27M in funding. Prior to those, and before receiving genuinely good advice on the flexibility afforded by LLCs when pursuing high growth and investment, I used S corps. By comparison, LLCs are fantastic.
PS. "Go look it up" seems a little snide.
In my experience, your comments are exactly backwards.
Now if you're just talking as compared to a disregarded entity LLC, I would agree with you