Should You Change Your LLC to an S-Corporation?

Should You Change Your LLC to an S-Corporation?

If you as a small business owner chose a limited liability company (LLC) structure for your company and have since experienced significant growth or wish to save money on self-employment taxes, you may be interested in switching your LLC to an S-Corporation.

Differences in LLC and S-Corp Taxation

There are several differences between LLCs and S-Corporations, and one of the most significant is the way they are taxed. LLCs are considered “disregarded entities” in the eyes of the IRS, which means that single-member LLCs are taxed the same as sole proprietorships — profits and losses are reported on the LLC owner’s personal federal income tax return. Personal income taxes are paid on the profits, and the LLC owner must also pay self-employment taxes.

Multi-member LLCs are taxed like partnerships. In addition, an LLC can also elect to be classified as an association and taxed as a corporation.

With an S-Corp, owners (called shareholders) are also taxed on their personal returns but do not pay self-employment taxes since they are considered employees of the corporation. S-Corp shareholders must be paid a reasonable salary and pay taxes on that salary.

To fully understand the tax consequences of converting your LLC to an S-Corp. you should consult with a Florida business attorney prior to undertaking any conversion.

Switching to an S-Corp from an LLC

Not every LLC can be converted to an S-Corp. To qualify, the LLC must:

• Be a domestic company
• Have fewer than 100 shareholders
• Have no shareholders that are nonresident aliens or part of a partnership or corporation
• Issue only one class of stock

Florida has a fairly simplified procedure for making that switch called “statutory conversion”; you simply need to file some paperwork with the Florida Secretary of State after preparing a plan of conversion that includes new articles of incorporation and the LLC members have signed off on the conversion.

Once you have converted your LLC to an S-Corp. you must then file Form 2553, Election by a Small Business Corporation, with the IRS to elect S-Corporation tax status.

Business owners seeking to protect their business interests should seek a qualified, competent advisor for assistance. Contact one of the experienced Florida business attorneys at Jurado & Farshchian, P.L., at (305) 921-0440, or email us at info@jflawfirm.com. We offer free consultations to business owners seeking to find the right attorney to meet their business’ legal needs.

 Share

The post Should You Change Your LLC to an S-Corporation? appeared first on Jurado & Farshchian, P.L. Business Lawyer, Real Estate Lawyer, Immigration Lawyer.