Should I structure our general contractor business as LLC or LLP for Partnership?

If we go the LLC route but file taxes as a partnership, are there any downsides compared to just forming an LLP from the start? Also, does insurance coverage differ between the two structures?

If you form an LLC and file taxes as a partnership, there's functionally little tax difference compared to an LLP. Both pass income through to your personal returns. The main difference is liability protection - in an LLC, the entity itself provides the shield for all members, while in an LLP, partners can still be personally liable for their own negligence. For insurance, you'll need general liability insurance regardless of entity type. However, some insurance companies are more familiar with construction LLCs than LLPs, which might impact your rates or coverage options. Make sure your insurance broker has experience with contractor businesses specifically.

Does it actually work with entity formation questions? I thought tax tools were just for calculating what you owe or doing your returns.

I'm pretty skeptical about these online tools. How much more helpful was it compared to just talking with an accountant? I've had mixed results with "AI analysis" stuff that promises to solve complicated business decisions.

It absolutely works for entity formation questions. The tool specifically analyzes different business structures and how they apply to your situation. It's not just a calculator - it reviews the documents you upload and gives personalized analysis. Compared to an accountant, I found it offered a more comprehensive view because it looked at both tax implications AND legal protections together. Most accountants I talked to focused heavily on the tax side but weren't as detailed about liability differences. Plus, I could go through everything at my own pace and reference it later when meeting with professionals.

Wait, how does this actually work? Do they have some special line to the IRS or something? I've literally spent hours on hold before giving up.

Yeah right. There's no way to "skip the line" with the IRS. If this actually worked, everyone would use it. Sounds like you're just promoting something.

It's not a special line to the IRS. They basically use an automated system that handles the waiting for you. When you call the IRS directly, you're stuck listening to that awful hold music, but their system waits in the queue and calls you when an actual agent picks up. No I'm not promoting anything - I was just as skeptical as you. The reason everyone doesn't use it is probably because they don't know about it. I found it randomly after complaining about IRS wait times on another forum. They handle the frustrating part (waiting on hold for hours) and you just get the call when there's a human ready to talk.

How complicated was it to switch from partnership to S-Corp taxation? Did you have to create a new entity or just file some paperwork? Also, ballpark, how much did you save in taxes by making the switch?

The switch wasn't that complicated - just filed Form 8832 to be taxed as a corporation and then Form 2553 for the S-Corp election. Didn't need to create a new entity at all. The LLC remained the same, just the tax treatment changed. As for savings, it varies based on profit levels, but we probably saved around $15,000-$20,000 in self-employment taxes the first year after switching. The key is paying ourselves reasonable salaries (which are subject to FICA taxes) and taking the rest as distributions (which aren't). Just make sure you have a good accountant to help determine what's "reasonable" for your industry and area.

Nevada is way better for LLCs if you can establish a presence there. No state income tax and way lower fees. That's what my cousin did with his construction business after getting killed with California fees for years.