If you run a small business and have an LLC, you could be debating whether you ought to switch to a S corporation. Although both LLCs and S corporations provide their owners with limited liability protection, there are several key distinctions to take into account before switching.
An S corp and an LLC differ primarily in their tax treatment. In the majority of cases, LLCs are taxed as pass-through businesses, which means that the company does not pay taxes on its own income. Instead, the owners receive a pass-through of the profits, which they then declare on their own tax filings. S corporations provide pass-through taxation as well, but they also have the advantage of not having to pay self-employment taxes. For business owners, this may mean huge tax savings.
There are some limitations on who can own S company shares, though. A company can only have 100 shareholders who are all either individuals or specific categories of trusts and estates to qualify as a S corporation. As a result, S corp stock cannot be held by partnerships, corporations, or nonresident aliens.
So, who can own shares in a S corporation? Any person or trust that satisfies the conditions may own S corp stock. Both company employees and owners’ relatives are included in this. S corporations cannot, however, have different classes of shares, which may limit the company’s flexibility.
One topic that frequently arises is whether an owner can sell personal property to their S corp, such as a car. Yes, but only if it is done at fair market value. In order to avoid paying taxes, the owner cannot sell the item to the S corp for less than it is worth. In conclusion, it depends on your specific business needs and objectives whether you should convert your LLC to a S corp. If you want to reduce your self-employment taxes and are eligible for S corp shares, it might be something to think about. To be sure you are choosing the best option for your company, it is crucial to speak with an experienced accountant or attorney before making any changes to your business structure.
Yes, it is possible to have a S Corporation without any workers. In fact, even if they have no workers, many small business owners who are the sole proprietors of their enterprise decide to operate as a S Corporation in order to benefit from the tax advantages. Regardless of whether you have workers or not, it’s crucial to remember that there are specific conditions that must be satisfied in order to qualify as a S Corporation.