LLC set up as an s corp [Definitive Guide]

Last updated : Aug 11, 2022

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Should I file my LLC as an S corp?

An LLC taxed as S corp offers benefits of a corporation while also providing flexibility on income treatment. If you want to operate on the most bare-bones, tax-stingy structure possible, an LLC taxed as S corp may be right for you.

Why should my LLC be an S corp?

If there will be multiple people involved in running the company, an S-Corp would be better than an LLC since there would be oversight via the board of directors. Also, members can be employees, and an S-Corp allows the members to receive cash dividends from company profits, which can be a great employee perk.

Can I change my LLC to an S corp?

You can switch your limited liability company's (LLC) tax status to an S corporation, provided it meets the Internal Revenue Service's (IRS) requirements. You don't have to change your business structure, but you'll need to file a form with the IRS.

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.

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.

What are the disadvantages of an S corp?

Formation and ongoing expenses.
Tax qualification obligations.
Calendar year.
Stock ownership restrictions.
Closer IRS scrutiny.
Less flexibility in allocating income and loss.
Taxable fringe benefits.

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.

Do S corps pay quarterly taxes?

Quarterly income tax return deadlines This requires the S corporation to file an IRS Form 941 each quarter to report the aggregate amount it withholds and needs to send to the IRS. The form is due four times a year typically on January 31, April 30, July 31 and October 31.

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.

When should LLC become 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.

When should I switch to an S corp?

When it comes to accounting, the easiest time to switch is January 1st. Forming your S Corp at the beginning of the tax year makes record keeping and tax preparation easier because you'll need to track your S Corp finances separately from your sole proprietor finances.

What is S corp tax rate?

What is the tax rate for S corporations? The annual tax for S corporations is the greater of 1.5% of the corporation's net income or $800. Note: As of January 1, 2000, newly incorporated or qualified corporations are exempt from the annual minimum franchise tax for their first year of business.

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.

What are the 3 types of LLC?

Single-member LLC for the sole-proprietorship (solo entrepreneur)
Multi-member LLC (member-managed LLC or manager-member LLC)
Domestic LLC and Foreign LLC.
Series LLC.
L3C Company (low-profit LLC)
Anonymous LLC.
Restricted LLC.
PLLC and LLC.

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.

Is LLC or S-Corp better for self employed?

LLC owners must pay self-employment taxes for all income. S corp owners may pay less on this tax, provided they pay themselves a â€œreasonable salary.â€ LLCs can have unlimited members, while S corps are limited to 100 shareholders.

Do you need S-Corp to pay yourself?

As an S corp owner, you only need to pay yourself as an employee if you are actively involved in running the business. If you're an employee of your business, you'll receive a fixed W-2 salary and have your income tax, Medicare tax, and Social Security automatically withheld.

Am I self employed if I own an S-Corp?

Some business owners wonder, "Am I considered self-employed if I own an S Corp?" Owners of S Corporations are "employed by" the S Corporation and receive a salary. This means that strictly speaking, you are not self-employed since you're considered an employee of the company.

How do S corporations avoid taxes?

#1 Reduce Owner's Wages.
#2 Cover Owner's Health Insurance Premiums.
#3 Employ Your Child.
#4 Sell Your Home to Your S-Corp.
#5 Home-Office Expense Deduction.
#6 Rent Your Home to Your S-corp.
#7 Use of an Accountable Plan to Reimburse Travel Expenses.

How does the owner of an S-Corp get paid?

An S-corp offers business owners three basic options for paying themselves: by salary, distributions or both. The right choice depends largely on how you contribute to the company and the company's finances.

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Comment by Daphine Langlais

in this episode i'm going to talk about s corporation through this video you may discover that an s corporation election is right for you you could possibly save a lot of money if you decide to elect your business as an s corporation so you probably clicked on this video because you are in the process of starting your business hello everyone i'm andrew from malai law where we help entrepreneurs just like you start your businesses without having to deal with all the complicated legal forms our don for you service is backed by over 1 95 google reviews and we can help you start your business as well i am a law graduate who just recently took my bar examination i am currently waiting for my bar examination results and now i'm helping entrepreneurs just like you start your businesses if you are a business owner or a potential business owner if you've spoken with a cpa a tax person may have introduced you to the idea that your business should be taxed as an s corporation a lot of business people don't know how an s corporation affects their business it is my goal through this video to talk to you about an s corporation and to break it down in simpler terms so business owners like yourself can learn a little bit more about the nest corporation so when you're forming a business you begin by choosing a business entity now you have two options for this business entity first option is to form an llc the second option is to form an s corporation a corporation can elect to be an s corporation and whether you're a c corporation or an s corporation is strictly a federal tax issue it does not affect the type of entity you are in the eyes of the state or how the business operates on a daily basis it is strictly related to federal taxes some people say there are two corporations c and s corporations however that's not really the right way to say that a corporation can elect to be an s corporation and whether you're a c corporation or an s corporation is strictly a federal tax issue it does not affect the type of entity you are in the eyes of the state it does not affect how your business runs on a day-to-day basis again it is strictly related to federal taxes if you form a corporation the corporation defaults to a c corporation as c and s corporation those names come from the subchapter of federal tax code if you're a c corporation which is the default i will explain to you what happens with these taxes money comes in taxed as a corporation a separate entity that must pay its own taxes basically this means that when the business makes money the company must pay taxes on that money then once that money is distributed to shareholders the distribution is then taxed again subject to double taxation basically meaning that it is taxed twice as opposed to an llc which is a pass-through entity this means when money comes in it is only taxed once at the individual level of the business owners the llc is not its own separate taxable entity it is taxed in relationship to the business owners what happens when you elect to be treated as an s corporation the s corporation gets to avoid that double taxation a corporation can elect to be an s-corporation by filling out irs form 2553 the income and the losses to the corporation are taxed at the individual level of the shareholders the corporation is not paying that tax what does this mean it is going straight through to the shareholders shareholders are able to personally deduct the expense from their taxes as well that is amazing so the question you're probably asking yourself is why are not everyone why aren't more business owners electing their corporations to be taxed as an s corporation the thing with s-corporations is that the irs is very strict there are certain requirements that must be met in order for a business to meet and to be eligible for an s-corporation example the corporation must be a domestic corporation it cannot be a foreign corporation shareholders must all be individuals there's a little bit of a difference when it comes to corporations the partnerships and corporations can be shareholders of corporations however as corporations members cannot be partnerships or corporations there must be 100 or fewer shareholders only one class of stock few types of businesses that are not a legible for that so if your business is related to something along the lines of an insurance company or a financial institution those look more into it if you are illegible or not i recommend that you look a little bit more into it to determine whether or not you are eligible now if you meet requirements of an s corp it may be able to save your company a lot of money on taxes it is important to note however that llcs can also be elected to be taxed as an s-corporation llc pays taxes once instead of twice like a corporation this means that taxes passed through to the owners of the llc an owner of an llc you have to pay self-employment taxes employee of a business you get paid and some taxes are taken out but the thing is you need not pay self-employment taxes if you are an owner of the business you have to pay self-employment taxes which go to social security and medicare business owners get to take wages as employees from the company they get to pay income taxes from that money that they get paid as employees but they don't have to pay that self-employment tax if your llc is taxed as an s-corporation because they are being paid as employees and any additional income that comes in is taxed as dividends electing to be treated as an s-corporation is a way to avoid paying that self-employment tax so you may be telling yourself i'm a business owner i'm gonna go ahead and set up an s-corporation and i won't take any money out only my dividends will be subject to taxation the thing with that is irs says that all llc's taxed as an s corporation the owner employees must take reasonable wages custom pay this basically means that you must search and you must do research and you must look to see what other people in your same field are getting paid cannot just avoid paying anything and avoid paying taxes altogether do a little bit of research and determines how much someone in your position would make uh the similar practice that you participate in and so you must pay yourself that amount whatever that custom amount may be and the additional income is dividends electing to be taxed as an s corporation is a way to save a bit by not having to pay self-employment taxes this was a short and basic explanation to elect to be treated as an s corporation a lot of other things are also to be considered that i will not dive into today but if you are starting a business and you believe it is the right way to go or your business is building right now and it's growing i advise that you speak with the right cpa or a good tax attorney and if so if you determine that an s corporation is right for you that is very good you will save money on taxes it's important to note that i am not a tax expert i received a tax concentration in law school but i am not a tax expert if you have any questions about anything discussed make sure you click the link in the

Thanks for your comment Daphine Langlais, have a nice day.
- Cecil Malamud, Staff Member

Comment by Mary

hey guys so in this video i'm showing you how to set up an s corporation the fastest easiest and most affordable way s corporations come with a lot of big benefits in this video i'm going to be going over the pros as well as some of the cons of having an s corporation for a lot of you small business owners out there you will likely see a lot of benefits from switching your business entity over to nasa corporation so yeah in this video i'm going to go over why you might want an s corp and then walk you guys through the steps of setting up your escort through ink file this is the website that i use to set all my business entities it's definitely the one that i recommend because it's the fastest easiest and most affordable way to set one up i'll put the link to ink file in the description below so you guys can click on that link and follow along with this video if that does help so let's first talk about what an s corp is and something that a lot of people don't realize is that an s corp is not a business entity itself rather it's a u.s federal tax designation so when you're setting up an s corp you're basically just setting up an llc that is taxed as an s corporation when you do elect to become an s corporation you are avoiding the corporate tax and what that basically means is that you are going to avoid double taxation therefore for a lot of small business owners it's going to make sense to have an s corp rather than a c corp so essentially what this pass-through taxation means is that any profits or losses are passed from the business to the shareholders now a lot of you guys are probably going to have an s corp and be the only owner of the s corp so that means that any profits or losses from your business are passed directly to your personal tax return since an escort is an llc you will have that limited liability protection so yeah some of the pros of having s corp are the limited liability having an unlimited number of management as well as that pass-through or flow through taxation when done right having an s-corp can reduce the amount of taxes that you're paying and basically how it works is you as the owner of the s corp you are also the employee of the escort so the s corp is paying you as an employee so you do get a w-2 and on that w-2 income you will have to pay self-employment taxes so that whole 15.3 fica but on any other profits those are gonna come to you as a distribution and for those distributions you will not have to pay that 15.3 fica tax therefore this is a great way for you to instantly reduce the amount of money you're paying in taxes so with the limited liability this means that you are not liable for anything in case for example your company gets sued and they want to see your company right any of your personal assets that are not within that company are safe so that is definitely a huge reason why a lot of people do have s corpse like i mentioned earlier having an s corp also allows you to avoid double taxation so what that means is that the corporation itself is not the one paying taxes if you compare this to a c corporation which is what all the really big companies use like amazon or apple c corporations are taxed twice so that means that the corporation itself is paying an income tax and then any other profits are sent to the shareholders and those people are also taxed as well with the s corp only the shareholders are being taxed there's no uh taxation at the company level so yes compared to an llc there are some big tax uh differentiations and the main one is that you are probably able to pay less self-employment tax so that 15.3 percent fight attacks so i want to go through an example of this because i know it can be kind of confusing why it makes sense to have an s corporation over being a sole proprietor or an llc so let's say that we have someone her name is maria and she has a company that brings in a hundred fifty thousand dollars of gross profit per year after annual expenses of thirty thousand dollars that leaves us with a net profit of a hundred twenty thousand dollars so very strong now since maria does have an s corporation this is how she's going to do it she's going to pay herself a reasonable salary of let's say 40 000 per year so every year she's going to get a w-2 showing that she's paid 40 000 from her company after that forty thousand dollars is paid that means that we're left with eighty thousand dollars of net profit within the company this eighty thousand dollars is exempt from the self-employment tax so what she's going to do is she's going to take that eighty 80 000 as a distribution basically any time during the year she can just go into her business bank accounts and transfer that money directly into her personal bank account she's going to label that as an owner's draw or distribution when she does this yes she's going to pay that 15.3 tax on that 40 000 but she's going to avoid that on that 80 000 so immediately you can see that she's saving over 12 000 by switching to an s corp that's why i'd say for most people if you're making at least maybe 50 60 000 per year in net income then it might make sense for you to switch over to an escort but really i don't know your exact situation and that's why you definitely want to talk to your accountant see what works all right so now i'm here on the home page for ink file this is definitely the best platform to create your llc it's how i create all my business entities and yeah that's why i really recommend it so once you're here you guys can get here by clicking on the link in the description below and then you'll click start my business right here it's going to allow you to uh select your entity type so for this one we are going to select s corporation and then you're going to select your state of formation so depending on what state you're in you're going to select that state i am in california so i will select that right there then it's going to take you to their packages so you can see that they have their silver package gold package as well as platinum package now the silver package is the cheapest one you can see that the one-time payment is a hundred five dollars and basically it's costing you zero dollars to set this up with the 105 dollar mandatory state fees so regardless of what you use to set up your s corporation you will have to pay that 105 state fee and this might be different depending on your state but you know just there is going to be some type of state fee now with the seller package it's going to include the preparing and filing of the articles of organization unlimited name searches as well as a free registered agent service for one year now when i made my business entities i did not choose silver even though it is the lowest payments i went with gold this is their most popular plan and you can see that it comes with a lot of comprehensive features that will just make your life a lot easier so this one's 254 just about 150 more than the silver package so you can see that the package fee is 149 that's what inkfile is getting for helping you set up the s corp and yeah it's just crazy because compared to hiring a la

Thanks Mary your participation is very much appreciated
- Cecil Malamud

About the author

Cecil Malamud

I've studied african religions at Whittier College in Whittier and I am an expert in harmonic analysis. I usually feel amused. My previous job was marine engineer I held this position for 20 years, I love talking about knitting and collecting hats. Huge fan of Lacey Evans I practice artistic swimming and collect sports cards.

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