An LLC offers liability protection for owners from creditors. To become an S corp, first register as a C corporation or LLC. Then the IRS taxes your business as a partnership, preventing double taxation. As an S corp owner, you are an employee who pays yourself a reasonable salary. Profits, losses, deductions and credits tax at the shareholder level.
With around $40,000 net income, consider converting an LLC to an S-corp when self-employment tax exceeds the S-corp burden. An S corp offers tax advantages and more separation between you and your business, better for a successful or growing business than an LLC. Instead of guessing if an S corp or LLC is better, contact an expert to evaluate your situation.
Newly formed LLCs can file an election for the LLC to be taxed as an S corp. within two months and 15 days of the date the business begins its first tax year. Whether you’re setting up a new LLC or you’ve been in business for a while, it’s worth considering whether a multi-member or single-member LLC to S corp. conversion will save you money.
Generally, this is a good approach for the start as LLCs offer liability protection and other advantages. However, entrepreneurs are often not aware that with increasing income, switching from LLC to S-Corp makes financial sense.
One of the biggest and most well-known advantages of an S-Corporation over an LLC is saving on self-employment tax.
Only you can decide which business structure is right for you. Weigh the pros and cons of each option carefully before making a decision.
You’ve recently been considering changing your business structure from an LLC to an S-corp. When you factor in the liability protections and tax benefits that accompany an S-corp, making the switch just makes sense. In this article, we cover what it takes to make a move from LLC to S-corp, the steps you’ll need to follow, and answer the most frequently asked questions about how to go from LLC to S-corp.
It is believed that if a company can pay its owners “fair wages” and at least $10,000 in dividends every tax year, then a multi-member LLC should choose the S corp classification.
Many US entrepreneurs set up an LLC in the beginning, because it is relatively easy and relatively cheap. Why Switch from LLC to S Corp? Reasons include:
- It is important to note that one must convert to an S-Corp by March 15 in order to be applicable for the following year, or within 75 days of opening the LLC to be applicable for the year of opening.
The decision to convert from an LLC, partnership, or sole proprietorship to an S-Corp should only be made when your business profits exceed the amount you’d sensibly pay yourself in salaries.
In this section, we will go over the advantages illustrating why converting an LLC to an S Corp is a strategic move to optimize your financial strategy and operational structure.
An LLC offers liability protection for members from lawsuits and debt. An S Corp is a tax election either an LLC or C corporation can select.