Transitioning from LLC to S Corporation
You can switch your limited liability company’s (LLC) tax status to an S corporation (S corp), provided it meets the Internal Revenue Service’s (IRS) requirements. Electing a new tax classification can have significant financial consequences, so it’s best to go over your options with a tax professional before deciding what to do.
Benefits of S Corporations over LLCs
Still, some small business owners change their LLCs to S-Corps for specific reasons. Here we’ll discuss some of the tax benefits that an S-Corporation offers over LLCs. This will help you decide whether you should or shouldn’t change your new LLC to an S-Corp.
Tax Benefits
One of the key reasons why entrepreneurs choose to change an LLC to an S-Corp is the tax benefits that an S-Corporation offers.
Conversion Process
- To change an LLC to an S corporation, prepare a plan of conversion.
- Get the LLC’s members to approve the plan.
- File a certificate of conversion and articles of incorporation with the Department of State.
Considerations and Process
- Do you need a new EIN when converting LLC to S Corp?
- To convert an LLC to an S corp, file Form 2553. Shareholders must sign it. File by the 15th day of the third month of the tax year when electing or forming the LLC.
Comparison: S Corp vs. LLC
- Is an S Corp better than an LLC? The main differences are tax benefits. An S corp can be more beneficial from a tax point of view since dividends received are not subject to either FICA or self-employment taxes, and an S corp is also not subject to corporate income tax.
Additional Clarification
There are several benefits to changing a business entity from an LLC to a corporation, with many tax benefits. The S Corporation designation offers more growth opportunities while the LLC designation offers more flexibility overall.