The choice of legal structure you wish to use is one of the most important decisions you must make when launching a new firm. The Limited Liability Company (LLC) and the S Corporation (S Corp) are two well-liked choices. Despite having some similarities, they differ in terms of the tax consequences and legal requirements. The main topic of this article is whether an LLC can be filed as a S Corp.
Yes, you can elect to file your LLC for tax reasons as a S Corp. Understanding the distinctions between the two types of organizations as well as what is necessary for an LLC to meet these standards is vital. To reduce self-employment taxes, an LLC should be filed as a S Corp.
An LLC is a versatile legal form that offers business owners limited liability protection and permits them to maintain their personal assets apart from their company assets. Being a pass-through business, the LLC is not taxed directly; instead, income and losses are recorded on the owner’s personal tax returns.
A corporation that chooses to be taxed as a pass-through entity is known as a S Corp. In that it shields shareholders from double taxation and offers limited liability protection, it resembles an LLC. A board of directors, the issuance of shares, and annual meetings are only a few of the more onerous legal requirements that apply to it.
An LLC must fulfill specified requirements, such as having no more than 100 shareholders, all of whom must be US citizens or residents, and only one class of stock, in order to be eligible for S Corp status. Within 75 days of its formation or the beginning of the tax year, the LLC must also submit Form 2553 to the Internal Revenue Service (IRS).
Although it is possible for a S Corp to have two presidents, it is not typical. An S Corp’s president is in charge of running the day-to-day affairs of the company, but they are also held to the same legal standards as other executives and stockholders. Thus, having two presidents could result in confusion and conflicts.
An S Corp’s shareholders are referred to as owners. They are entitled to a share of the company’s gains and losses since they possess shares. However, unless they are also officers or directors, they are not in charge of the day-to-day management of the company.
Your business’s size, your job duties, and the sector you work in all have an impact on how much compensation you should be taking from your S Corp. It is advised that you pay yourself a salary that is reasonable and comparable to what you would make in a comparable role at another company. By doing this, you can be confident that you aren’t underpaying yourself and evading payroll taxes.
In summary, declaring an LLC as a S Corp can be advantageous for some organizations, but it’s important to comprehend the distinctions and specifications of each legal form. It is advised that you speak with a legal or tax expert if you are unsure which choice is ideal for your company.