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The LLC taxed as S company - great idea or bad?

Automatically, a single-member LLC is really a "disregarded" entity, that's, the entity is ignored by the IRS and the only member may be the taxpayer. Thus, a person as a sole member working a small business would be taxed on his particular get back as a schedule C, sole proprietor. Several firms run in this way, which has no tax advantages and large risk of audit, not to mention having to pay home employment tax on earning. examples of llc names

Most professionals might suggest working an operating company (especially with employees) as an S corporation. An S company has a decrease risk of audit and may save the business enterprise owner tens and thousands of pounds in FICA tax.

But, what if you presently shaped an LLC? No worry, you can convert the LLC for federal revenue tax purposes to an S corporation. This implies many steps:

  1. Obtain a federal tax ID# from the IRS at (if you have one, you will need a new one - send employing a moderate variance of the business name, by having an additional hyphen or syllable).

  2. Record IRS type 8832 to select an entity election as a company - send to IRS.

  3. Record an S company election type (IRS type 2553, which you may download from

  4. Modify your operating contract allowing for the newest taxation principles (or, if you don't have one at all, CREATE an operating agreement).

The LLC tax as S company may possibly need the assistance of a tax advisor and/or lawyer to accomplish, relying on what relaxed you are with the forms and documentation.

The following issue is whether the LLC taxed as S company must ACT such as a company for tax purposes even although state LLC laws may not need it? For instance, do you need to issue stock records, have annual meetings and resolutions such as a corporation. While their state may possibly state "no", the IRS auditor may possibly state YES! Therefore, even although you just like the informality of an LLC, you still may need to issue records and keep annual minutes and document resolutions for all task your LLC does that's from the common course of company (such as large purchases or leases, loans in and out, etc).

While still instead new, the LLC taxed as S company can be a possible idea for an individual who shaped an individual member LLC and must have really developed an S corporation.