How To Change An LLC To An S-Corp (2024 Guide)

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What Is an S-corp?

An S-corp is not a business structure but a tax election that’s available for both LLCs and corporations. Depending on the profits a business generates, electing to be taxed as an S-corp may save a substantial amount on self-employment taxes.

Consider Whether Changing To an S-corp Is Advantageous

LLCs ordinarily have pass-through taxation, which means that business income and deductions pass through to the LLC members’ or owners’ personal taxes. Single-member LLCs are taxed as sole proprietors and multiple-member LLCs are taxed as partnerships. LLC members will also pay self-employment taxes. Self-employment taxes are the payroll taxes that fund Medicare and Social Security.

Some LLCs, even single-member LLCs, can elect to be taxed as S-corps, however. The business will still have the personal liability protection and management flexibility of an LLC, but it will be taxed as a corporation. In an S-corp, the owners can be company employees. They must be paid a reasonable salary, and they will pay payroll taxes on that salary. However, additional company profits won’t be subject to payroll taxes, only income taxes.

In general, you’ll want to consider converting from an LLC, partnership or sole proprietorship to an S-corp when your profits are greater than the amount that you’d reasonably expect to pay in owner salaries. Depending on your specific tax circumstances, this assessment can be complex, so you should discuss it with your tax advisor or accountant.

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