Due to the flexibility and security it offers, many small business owners decide to form their organizations as Limited Liability Companies (LLCs). An LLC may be taxed as a partnership, C-Corp, S-Corp, sole proprietorship, or other entity. However, there aren’t many tax planning choices available to single-member LLCs. The IRS views them as a disregarded company, therefore the owner’s personal tax return is where the business’s earnings and outlays are disclosed. But is it possible to tax a single-member LLC as an S-Corp?
Yes, it is the answer. By submitting IRS Form 2553, a single-member LLC may decide to be taxed as an S-Corp. Before the start of the tax year in which the election is to take effect or within 75 days of the LLC’s establishment, this form must be submitted. The LLC must also fulfill a number of conditions, including as having no more than 100 shareholders and just one owner who is a US citizen or resident.
Making the S-Corp taxation election requires the use of Form 2553. It is a brief form that asks for fundamental details about the company, including name, address, and tax identification number. It also needs details concerning the election, like the date it went into effect and the owner’s name and address for the LLC. The LLC will be treated as an S-Corp for tax purposes once the form has been submitted and approved.
Form 2553 can be submitted for free, however there are restrictions and dates that must be followed. If these conditions are not met, the LLC may be taxed as a C-Corp or as a disregarded company. Before making the selection, it is crucial to speak with a tax expert to make sure it is the best option for the company.
On the other hand, an LLC’s tax classification can be changed using Form 8832. It is used to either make a new election or revoke an earlier one to be taxed as a C-Corp. Form 8832 is not subject to a filing deadline, in contrast to Form 2553, although it must be submitted no later than 75 days prior to the anticipated effective date. Form 8832 is designed to give LLCs greater options about their tax categorization.
In conclusion, a single-member LLC may elect to be taxed as an S-Corp by submitting IRS Form 2553. There is no filing fee, but there are severe guidelines and timeframes that must be followed. When changing an LLC’s tax classification, Form 8832 must be submitted no later than 75 days before the intended effective date. Before making any election, it is crucial to seek the advice of a tax expert to make sure that it is the best option for the company.
A single-member LLC may choose to be taxed as an S-Corp for the 2021 tax year, but certain conditions must be satisfied. The LLC must submit Form 8832 in order to be recognized as a corporation, and Form 2553 in order to choose S-Corp status. The single-member LLC must also fulfill all prerequisites for S-Corp eligibility, including having just one class of stock and conforming to ownership and shareholder rules. Before making the election, it is advised to check with a tax expert to make sure that all conditions are satisfied.