Starting a Commercial Cleaning Company: LLC or S-Corp? What Would You Do Again?
We’re getting ready to form a commercial cleaning company with three equal owners, and we’re trying to make the right tax decision before we get too far down the road.
We originally planned on a multi-member LLC taxed as a partnership. Our accountant is leaning toward having the LLC elect S-corp taxation instead.
I understand the basic S-corp argument around payroll/self-employment taxes, but I’m more interested in how this actually works in the real world for people running cleaning companies.
Our priorities are pretty simple:
- Legally minimize the personal tax hit for the owners.
- Keep as much money working inside the business as makes sense so we can build reserves, buy equipment/vehicles, hire, and grow.
What caught us a little off guard is learning that with partnership taxation, we can owe personal taxes on our share of company profit even if we leave that money sitting in the business.
Our accountant also talked about distributing profits to the owners, paying the taxes, and then potentially loaning money back into the company. That seems a little circular to me, so I’m curious what other owners actually do.
For those of you who have been doing this awhile:
- Are you taxed as a partnership or S-corp?
- At what level of profit did S-corp taxation actually become worthwhile?
- How do you handle profits you want to leave in the company?
- Do you make tax distributions to the owners?
- Have you ever distributed money and then loaned it back to the company?
- If you were starting over, what would you do differently?
We already have an accountant, so I’m not looking for Reddit to replace a CPA. I’m trying to understand what has actually worked for other cleaning business owners and where the traps are before we make the decision.