Can an LLC be taxed as an c corp [Expert Guide]

Last updated : Aug 17, 2022
Written by : Mikel Kounovsky
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Can an LLC be taxed as an c corp

Why would an LLC file as an C Corp?

If your eventual goal is to get private equity money or venture capital, you should elect to be treated as a C-corp for tax purposes. If you're the owner of an LLC that's taxed as a partnership, you can't be an employee of your company.

Can a LLC file taxes as as corp?

For federal income tax purposes, there is no such thing as being taxed as an LLC. Instead, an LLC can be taxed like a sole proprietorship, a partnership, a C corporation or—if it qualifies—an S corporation.

Should my LLC be S Corp or C Corp?

The LLC is a low-maintenance legal entity that's best for a simple business. An S corporation is a tax status created so that business owners can save money on taxes. A C corporation is a more complicated legal entity that's best for businesses looking to keep profits in the business.

Does an LLC taxed as an C corp get a 1099?

If your contractor is an LLC that files taxes as a corporation (S Corporation or C Corporation), they are treated as a corporation for tax purposes and this means that they generally do not have to receive a 1099.

What is the best tax structure for LLC?

As a simple and effective tax structure, many multi-member LLCs will find the partnership tax status to be an ideal choice. However, if your company plans to seek funding from outside investors or other types of passive owners, you may want to consider being taxed as a corporation.

What is the best tax classification for an LLC?

The best tax classification for an LLC depends on whether you want your business profits to be taxed at your personal income tax rate, or at the corporate tax rate. If you'd prefer personal tax rates, you can classify it as a disregarded entity or as a partnership. Otherwise, you can classify it as a corporation.

Which is better for taxes LLC or S corp?

LLCs. As an LLC owner, you'll incur steep self employment taxes on all net earnings from your business, whereas an S corporation classification would allow you to only pay those taxes on the salary you take from your company. However, itemized deductions could make an LLC a more lucrative choice for tax purposes.

Should my LLC be taxed as a corporation or partnership?

A domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and elects to be treated as a corporation.

Why would an LLC elect to be taxed as an S corp?

The S corporation is the only business tax status that lets you save on Social Security and Medicare taxes while avoiding double taxation. An LLC taxed as S corp offers benefits of a corporation while also providing flexibility on income treatment.

Is a single-member LLC an S Corp or C Corp?

The default federal tax status for a single-member limited liability company (SMLLC) is disregarded entity. However, the owner of an SMLLC can elect to have the business taxed as either a traditional C corporation or as an S corporation. An S corporation is a special type of small, closely-held corporation.

What is difference between LLC C and S Corp?

Difference Between C Corp vs S Corp C corporations pay tax on their income, plus you pay tax on whatever income you receive as an owner or employee. An S corporation doesn't pay tax. Instead, you and the other owners report the company revenue as personal income.

Is it better to be a single-member LLC or S Corp?

LLCs offer more flexibility in terms of allocating profit percentages to owners. S corporations offer better options for how profits are distributed. They can be paid as salaries to the owners, or they can be given as profit distributions. S corporations provide more options for tax planning and reduction.

Is it better to be a 1099 or LLC?

The biggest difference between an LLC and an independent contractor is the fact that LLCs are required to register with the state and form business documents like articles of organization. LLCs also offer liability protection that independent contractors would not have otherwise.

What types of LLC get 1099?

Can an LLC get a form 1099? For single-member LLC or partnership, you will get a 1099 from a company paying $600 or more in yearly revenue. However, if an LLC is taxed as an S corporation, it will not receive a form 1099. For income tax filing with the IRS, you should know how and when to issue or get a 1099.

Can I 1099 myself from my LLC?

If you choose to pay yourself as a contractor, you need to file IRS Form W-9 with the LLC and the LLC will file an IRS Form 1099-MISC at the end of the year. You will be responsible for paying self-employment taxes on the amount earned.

What is the downside of an LLC?

Disadvantages of creating an LLC Cost: An LLC usually costs more to form and maintain than a sole proprietorship or general partnership. States charge an initial formation fee. Many states also impose ongoing fees, such as annual report and/or franchise tax fees. Check with your Secretary of State's office.

When should I convert from LLC to S-Corp?

The right time to convert your LLC to S-Corp From a tax perspective, it makes sense to convert an LLC into an S-Corp, when the self-employment tax exceeds the tax burden faced by the S-Corp. In general, with around $40,000 net income you should consider converting to S-Corp.

What expenses can an LLC deduct?

  • Car expenses and mileage.
  • Office expenses, including rent, utilities, etc.
  • Office supplies, including computers, software, etc.
  • Health insurance premiums.
  • Business phone bills.
  • Continuing education courses.
  • Parking for business-related trips.

How do taxes work for LLC?

An LLC is typically treated as a pass-through entity for federal income tax purposes. This means that the LLC itself doesn't pay taxes on business income. The members of the LLC pay taxes on their share of the LLC's profits. State or local governments might levy additional LLC taxes.

How do I change the tax classification of my LLC?

An LLC can change its tax status and elect to be taxed as an S corporation. You'll need to file IRS Form 2553 with the IRS. The LLC must elect to be taxed as an S corporation no more than two months and 15 days after the beginning of the tax year when the election is to go into effect.

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Can an LLC be taxed as an c corp

Comment by Owen Koetz

welcome to home biz tax talk my name is lissandra Everett I am the home biz tax lady where help home business owners win the tax game home biz tax talk airs Monday through Friday 9:00 o'clock ish and when you tune in to my show you're gonna hear about topics that are important to the home business community okay one of the biggest complaints I get is that I never talk about see corpse well that is intentional hahaha you know and the main reason is this because a lot of times what happens is that people go look up a specific question on YouTube and Google that's how search engines work you're looking for an answer to a particular question you watch one video or you read one blog post and then you suddenly feel like you have the answer to your question and then you go and get yourself into a whole bunch of trouble such as the case with business entities and all of that and really why I've been focused here for a while so but most of the content that you find though is really about the benefits of doing something is telling you why you should but there really aren't a whole bunch of people telling you why you shouldn't okay and so that's really where I'm going with this one because a lot of times I think people get enough information on the benefits of doing something but not really realizing the pitfalls and the obstacles that can come with this and forming a c-corporation is one of those things okay so I will tell you now that you can read all the blogs you can watch all of my videos you can watch every Dern YouTube video that you can find about business entities you are still not going to get a correct answer specifically for you this is why you need to come you need to consult with a professional invest in the consultation because that little bit of money that you're gonna spend upfront is gonna save you thousands on the back end so I implore you to not go and make these business entity changes without consulting with someone okay that is a professional and I don't mean going to the barber shop and a hair salon to get your tax advice okay I'm just letting you know alright so but that out of the way I want to focus on the disadvantages of having your LLC taxed as a secret so the first thing that everybody hears about is the double taxation and what does that mean that means that with the corporation the C corporation that is the only business entity that actually files and pays its own taxes the S corporation partnerships those are information returns there is no federal tax now is there can there be state tax liabilities with those entities absolutely but the corporation the C corporation is the only business entity that files and pays its own taxes so the earnings that the corporation's has the profits are taxed and then if there are any dividend distributions those are also taxed at the individual level okay so now the dividends are considered ordinary income so that can be from ten percent on the low end to thirty seven percent on the high end based on what your final income tax bracket is where if you are an owner of the corporation and you are working in the business then you you have to take a salary and so you are you know you're being paid on a w-2 and you've got to pay those Social Security and Medicare taxes as well so you're gonna pay the you know the taxes at the corporate level for the business and also individually whether you're getting a dividend or you're receiving a salary so that's the double taxation piece now the other another disadvantage is based on the tax cuts and Jobs Act this is the tax reform that just happened corporations are not are not able to take the qualified business income deduction that is the up to 20 percent that passed through entities can take on their personal income tax return for for the qualified business income deduction that's based on your profit and some other stuff there's a whole bunch of math that goes into that but it's up to 20 percent and there's some other limitations in y'all that just did something that that kind of math yeah we just ain't doing that today but also for the corporations there is the accumulated earnings and what that is is you know if you've got a corporation and you're keeping money in the bank you can you may actually have to pay taxes on that now now you really don't have to worry about the accumulated earnings tax until you have about two hundred and fifty thousand dollars in the bank but still it's a concern because if you're growing your business the way that you're supposed to you're gonna make money so the accumulated earnings tax is one of those things that's a possibility even if it's not today in your future that's an additional I think it's about twenty percent tax for accumulated earnings tax so there is you know a whole nother ball of wax over there then the next one is the what's called zeroing out okay so basically what that says is you're not leaving any money in the corporation you're either paying it all out in salaries or dividends which means you may not pay any taxes at the corporate level but you're gonna pay it at at the individual level so that's something that people try to do as well it just depends on you know what your goals are this is why I say you don't go do this stuff all willy-nilly because there's too many moving pieces now this one the next one I'm going to talk about people like it's just a lack of knowledge really and that is dealing with corporate losses so when you have a loss with a pass-through entity that's again that's your sole proprietor your single-member LLC your partnerships multi-member LLC and your s corpse those that pass through the the profits and losses are passed through to your personal income tax okay so if there's a loss its netted against other income and you know for your personal is that if you've got a w-2 job you've got a spouse that's working it's netted against other income where with the corporation you're your corporation maintains those losses and you hear about a net operating loss and really net net operating losses are really huge because people are you know what hit the news earlier this year is how Amazon isn't paying any is on 11 billion dollars well or 11 million however but it was a bunch of commas and zeros at the end okay but it's because they have a net operating loss that they're carrying forward that was wiping out their profits okay and so that's what happens with the corporation when you have a loss that gets carried forward and with the current with the current tax law it offsets up to 80 percent of your profit so you can still the net ever up net operating loss I don't know why I can't say that today the NOL how about that that's what it is so the NOL gets carried forward and offsets other profits in the future it's not something that gets passed through to your personal return alright now the next one is really not understanding the getting out process right this is why again I tell you you don't take these things lightly because getting into being taxed as a c-corporation is really easy you just file a form and boom there there you go but if you figure out after the fact

Thanks for your comment Owen Koetz, have a nice day.
- Mikel Kounovsky, Staff Member

Comment by korpsgees4

is your business protected against the threat of malicious litigation and frivolous lawsuits are you sinking company profits into marketing campaigns to do nothing to contribute to the growth of your business bottle business sentence provides practical business perspectives that uniquely emphasize both legal and media marketing strategies to protect and ensure the longevity of your business and whether you're trying to provide a startup business with some level of stability or an established business with foolproof asset and estate protection or simply attempting to get a better return for your business marketing dollars bill Barnard and Rick Moscoso will expose potential pitfalls to ensure the security and growth of your business free from unwanted expense and the threat of litigation you'll learn how to implement marketing and protection tools equal to those used by today's most successful corporations let's join Bill and Rick for today's Bothell business sense show good morning everyone now welcome to today's episode of the bottle business sense show I'm Rick Moscoso with my co-host Bill Barnard on the other side and today we have an interesting show where we're going to talk about or ask the question should your LLC elect S Corp status and so we have an excellent expert on the other side who's going to talk about this topic so let's let's bring them onto this episode mr. bill Barnard thanks Rick good to see you good to see you everybody I'm glad you're with us today Rick mentioned that we have an expert with us and what he's referring to me but I want to want to also add a disclaimer that what I'm going to talk about today is important from a business and a taxation standpoint that you should coordinate what I say today with your tax accountant very very very important and you'll see why as we we go through the show you know Rick I thought I'd start out by saying business owners often struggle between whether to choose an LLC or an S corporation and the two really aren't that mutually exclusive and by that I mean it's possible to form an LLC but then elect S corporation status what do I mean by that let's go let's talk about some of the similarities and key differences between the two and that'll help you get a foundation for what I mean we're talking about a strategy concerning payroll taxes and employment taxes if you have an LLC payroll taxes and employee complete absence of limit taxes are going to be very very critical and I'll show you what I mean unlike a regular C corporation both an LLC and an S corporation do not pay taxes on business profits they only pay they only pay actions through the income tax returns filed by the business owners in other words they're passed through taxable entities so you file a return your accountant does on your behalf for your business whether it's an LLC or an S corporation and you pay the state secretary of state the fee a yearly fee for that which is the same every year but you don't pay any taxes until you file your individual tax return because the profits you make from your LLC or your S corporation flow through or pass through your individual tax return and that's when you pay your taxes so having said that both structures are passed through taxable entities and the second big important similarity is both structures new what we're going to test you at see if you remember all the important things never talked about what's the key of having a business entity what's the big key of having a business entity why do you want one well the one that comes to mind is protecting their personal assets yes see that's it that's the second big key similarity between an LLC and an S corporation you protect your personal assets again assuming you're you you don't have a pseudo entity you're not committing fraud and various other things that we've talked about in other shows concerning business entities specifically however there's some key differences between the LLC and the S corporation usually the LLC is a big advantage for small business owners who don't want to be what burden by paperwork because the S corporation has a lot of specific paperwork and annual meetings and organizational notes that you have to keep during the course of the year the other thing is the LLC offers more flexibility 's and how how owners can allocate the percentage of their profits and losses this is real important follow me on this now this is really important the LLC offers flexibility let's say you start a business with a friend and you each own 50 let's say you and I started leaving this Rick and I own 50% and you own 50% but something comes up in your personal life you spill coffee all over yourself and you've now got hot coffee stains and burns all over you've got to be rushed to the ambulance by the ambulance or the hospital and you can't work I'm having to do most of the work and I'm saying this folks because before the show today Rick stole coffee all over himself so but uh we are business partners hypothetically so all of a sudden you can't do most of the work I have to do it you decide and we decide that the fair thing to do is to pay me 75% of that year's profits and you only get 25% because I did most of the work we can do that with an LLC however with an S corporation we own 50% of that corporation so regardless of me doing most of the work you get 50% of the profits and I get 50% of the profits even though you're laying in a hospital somewhere you know I'm getting high on the opioids or whatever it is and you're collecting all this all this money right so that's the real big classic plus for an LLC remember that certain businesses can't be LLC's like lawyers like myself that's again the topic of a different show but if you're if you're if you're a business owner and you can choose between an LLC and a corporation that's one of the things that LLC allows you to do that a corporation would never allow you to do how about the key advantage that an S corporation has with taxes because that's really what we're talking about in this show the S corporation gives you more flexibility with regard to taxation so if you have this big flexibility I just talked about with an LLC in terms of allocating profits and you have this big tax advantage with an S corporation which I'm going to explain in a minute when you have the best of both worlds if you formed an LLC but you chose to be taxed as an S corporation sure sure but how does that work well the S corporation gives you flexibility in this way for example let's say you're have an LLC now all of your earnings are passed along in the form of self-employment income and therefore when you make your profits on your LLC you're getting taxed on Social Security and Medicare ok you're getting taxed in the form of self-employment income and Social Security and Medicare all of the taxes the payroll taxes that come out of your taxes at the end of the year if you have an S corporation though you have the option of dividing up earnings in terms of wages and salary and then passive income in the form of distributions so only wages and salary that you take out are subject to the FIC

Thanks korpsgees4 your participation is very much appreciated
- Mikel Kounovsky

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