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LLC Taxed as S Corp
Posted on 11/6/08 at 2:29 am
Posted on 11/6/08 at 2:29 am
I have an LLC in my name that I want to have taxed as an s corp.
My goal is to have revenues from the business (an LLC) taxed seperately from my personal income/salary. I don't want to mix the two. In hindsight, I should have just gone with the S Corp.
Any thoughts if this option (taxing LLC as S Corp) would work?
My goal is to have revenues from the business (an LLC) taxed seperately from my personal income/salary. I don't want to mix the two. In hindsight, I should have just gone with the S Corp.
Any thoughts if this option (taxing LLC as S Corp) would work?
5
Posted on 11/6/08 at 7:14 am to siliconvalleytiger
It should work fine. I initially made the same mistake. My CPA filed some papers and now I am able to file as an S corp. One the appropriate papers have been filed, make sure you change your W9 or W2 to reflect you are an S Corp. By filing as an S corp you will have much greater control ovr how much you pay yourself as well as hw much is invested into Social Security.
Posted on 11/6/08 at 8:36 am to siliconvalleytiger
quote:
My goal is to have revenues from the business (an LLC) taxed seperately from my personal income/salary. I don't want to mix the two. In hindsight, I should have just gone with the S Corp.
then you don't need an S Corp or S Corp style tax treatment. S Corp revenue is added to your other income on your personal return. You want to be taxed as a C Corp.
Posted on 11/6/08 at 10:25 am to ForeLSU
quote:
You want to be taxed as a C Corp.
C Corp's pay their own taxes.
Posted on 11/6/08 at 11:10 am to siliconvalleytiger
quote:
I have an LLC in my name that I want to have taxed as an s corp.
File Form 8832, Entity Classification Election, electing to be taxed as a corporation or association. Then file Form 2553, Election by a Small Business Corporation, electing S-Corp status and you will be good to go. The only real issue will be the effective date of the S-Corp election.
quote:
My goal is to have revenues from the business (an LLC) taxed seperately from my personal income/salary. I don't want to mix the two. In hindsight, I should have just gone with the S Corp.
S-Corps are pass through entities. They do not pay income tax. The income from a S-Corp is reported on the individual income tax returns of the shareholders. The income from an S-Corp will not be subject to self-employment tax if the S-Corp pays the shareholder employee a reasonable salary. What constitutes a reasonable salary is determined by the facts and circumstances of the S-Corp. If the S-Corp is losing money, then zero salary is reasonable.
quote:
Any thoughts if this option (taxing LLC as S Corp) would work?
In general, the purpose of using this arrangement is to avoid paying self-employment tax on the income from the S-Corp. I've set this arrangement up many times for clients. It has several advantages over forming a corporation and then electing S-Corp status. The main reason is that the formalities of forming and maintaining good standing for an LLC are genrally easier than those for a corporation.
Talk to an attorney or CPA familiar with the laws of your state before you do anything. The variations in state income, and/or franchise, taxes may have a significant impact on your decision.
Posted on 11/6/08 at 2:45 pm to ForeLSU
What kind of business are you in? You need to be aware of how C Corp personal service companies are taxed if you are and engineer, lawyer, doctor, etc.
Posted on 11/6/08 at 3:14 pm to siliconvalleytiger
quote:
I have an LLC in my name that I want to have taxed as an s corp.
My goal is to have revenues from the business (an LLC) taxed seperately from my personal income/salary. I don't want to mix the two. In hindsight, I should have just gone with the S Corp.
Any thoughts if this option (taxing LLC as S Corp) would work?
S Corps are far less flexible than LLCs. There really isn't any "separation" value that you can't achieve with your own bookkeeping, and you can't slice and dice interests in S Corps the way you can in LLCs should you decide to admit other shareholders. I've been a practicing tax attorney for over 30 years, and I would always advise to use the LLC format instead of the S Corp format.
Posted on 11/6/08 at 6:28 pm to nycajun
quote:
...I would always advise to use the LLC format instead of the S Corp format.
There are distinct advantages that each type of entity has, so I could never recommend to clients that the LLC is always the way to go.
The LLC is much more flexible in regards to who can own interests in the entity. The LLC allows for disproportionate allocations of income, loss, deductions and credits. Contributions of property to and distributions of property from LLC's are generally not taxable events (especially important if real property with appreciated values are involved). These are some significant advantages of an LLC. However they do not necessarily apply to all businesses.
In particular a personal service business often benefits from S-Corp status. S-Corp income will not be regarded as self-employment income if the S-Corp pays a reasonable salary to any shareholder employees. Thus a profitable S-Corp can allow its owner to avoid significant self-employment taxes. For example, a S-Corp earning $100,000 of profit can pay its shareholder owner a salary of $30,000 leaving it a net profit of $67,750 after payroll expenses. The total Social Security and Medicare taxes paid by the company and shareholder will be approximately $4,500 ($30,000 x 15%). The $67,750 of net income from the S-Corp plus the $30,000 in salary will be taxed as ordinary income to the shareholder. If the shareholder's tax rate is a flat 25% the total taxes paid are $28,938 ($24,438 of income tax and $4,500 of payroll tax). If the same business was an LLC the owner would pay approximately $15,000 of self-employment tax plus $23,125 of income tax for a total tax of $38,215. Using the S-Corp can save the owner over $9,000 per year in taxes. And the savings potential will increase if the caps on income subject to Social Security tax are raised as proposed by President-elect Obama.
Posted on 11/6/08 at 6:59 pm to rmc
I'm a tax accountant so I give all of my clients tax advice because it is why they come to me.
Effective use of business entites is absolutely essential to providing sound business and tax advice to clients. The key reason for doing so is asset protection. Using entities to separate personal assets from business assets is more important than the tax benefits that can be derived from using business entites. The type of entities to use can be selected based on relative tax advantages.
Effective planning has to incorporate both income and estate taxes. Thus when advising clients I frequently include the use of trusts and family partnerships when developing an organizational structure. As an accountant I can design a business and estate plan and explain all of the economic benefits, but it still requires an attorney to draft all of the documents necessary to implement the plan.
Being a good estate planner requires knowledge of the applicable laws (federal, state and possibly foreign), it also requires computational skills sufficient to analyze the expected results of the plan (there is software available to assist in this, but it ain't cheap), and most importantly it requires that you understand precisely how your client wants his assets to be distributed and to whom he wants them distributed so you can devise plan that will satisfy him.
Effective use of business entites is absolutely essential to providing sound business and tax advice to clients. The key reason for doing so is asset protection. Using entities to separate personal assets from business assets is more important than the tax benefits that can be derived from using business entites. The type of entities to use can be selected based on relative tax advantages.
Effective planning has to incorporate both income and estate taxes. Thus when advising clients I frequently include the use of trusts and family partnerships when developing an organizational structure. As an accountant I can design a business and estate plan and explain all of the economic benefits, but it still requires an attorney to draft all of the documents necessary to implement the plan.
Being a good estate planner requires knowledge of the applicable laws (federal, state and possibly foreign), it also requires computational skills sufficient to analyze the expected results of the plan (there is software available to assist in this, but it ain't cheap), and most importantly it requires that you understand precisely how your client wants his assets to be distributed and to whom he wants them distributed so you can devise plan that will satisfy him.
Posted on 11/6/08 at 9:42 pm to Poodlebrain
Some great information on this thread.
Thanks to all the posters.
Thanks to all the posters.
Posted on 11/6/08 at 11:08 pm to Homeboy
Yep - great info. Thanks all.
Posted on 11/8/08 at 8:06 am to rmc
rmc-
If you are already computer science and interested in accounting, you should really look into accounting technology and information systems. There is a lot of money to be made in that field over the next ten years.
poodle right again on taxes, leave it to the lawyer to confuse the benefits of an scorp.
If you are already computer science and interested in accounting, you should really look into accounting technology and information systems. There is a lot of money to be made in that field over the next ten years.
poodle right again on taxes, leave it to the lawyer to confuse the benefits of an scorp.
Posted on 11/9/08 at 9:12 am to tigeralum06
Actually he is correct about the LLC having greater flexibility than the S-Corp. However, you can form an LLC and elect to have it taxed as an S-Corp. In this fashion you get all of the legal flexibility of an LLC as long as you comply with the S-Corp rules regarding who can have an ownership interest and limit yourself to proportional allocations.
S-Corps are particularly useful for personal services businesses, but other types usually benefit from being LLC's.
S-Corps are particularly useful for personal services businesses, but other types usually benefit from being LLC's.
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