Converting LLC to S Corporation
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Overview
An LLC can choose to be taxed as a sole proprietorship, partnership, S Corporation, or C Corporation. Self-employed individuals can save on taxes by switching to an S Corp.
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Tax Election Process
Use Form 8832 for LLCs wanting C-corp, partnership, or sole proprietor tax status. Use Form 2553 for LLCs or corporations wanting S-corp status.
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Steps for Conversion
- Meet IRS eligibility requirements.
- File Form 2553 with the IRS to elect S corporation status.
- Amend operating agreement to S corp standards.
- Get any licenses and permits needed.
- Notify state, agencies, contractors of the change.
- Set up S corp payroll.
S Corporation Benefits and Considerations
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Succession Planning
An S-Corp offers easier succession planning than an LLC. Consider several factors before switching from an LLC to an S-Corp.
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Case for Conversion
Understand when it makes financial sense to convert an LLC to an S-Corp based on income levels. Factors such as tax advantages and liability protections influence the decision.
Tax Implications and Deadlines
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Tax Benefits
Electing S-corporation status for your LLC can reduce your tax bill without changing its legal structure.
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Conversion Deadline
It is essential to convert to an S-Corp by March 15 or within 75 days of opening the LLC to be applicable for the respective tax year.
Single-Member LLC Conversion
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Eligibility and Process
Single-member LLCs can also convert to an S Corporation by meeting IRS requirements. Seek professional advice before making this tax election.