LLC Election for S Corp Status
A new LLC can elect S corp status from the IRS during formation when it requests an employee identification number (EIN). There are six steps to forming an LLC and electing S corp status:
- Select a State
- Name Your LLC
- Choose a Registered Agent
- File the Articles of Organization
- Create an Operating Agreement
- Get an EIN and File Form 2553 to Elect S Corp Tax Status
Reasons for S Corp Election
An LLC electing S corp status typically occurs when the LLC owners prefer the administrative structure of a limited liability company but would like to be treated as an S corp for tax purposes.
Requirements for S Corporation Status
To be approved for S corporation status, your business must meet the following conditions:
- It may not be an insurance agency, a bank, or an export business.
- Shareholders must unanimously consent to electing S corp status.
Benefits and drawbacks to electing to form an S corp should be understood when making decisions regarding corporate structure.
S-corporations allow businesses to pass-through income, losses, deductions, credits, and taxes to shareholders while retaining a corporate structure. However, limitations on ownership and shareholders may make S-corp status unsuitable if attracting outside investment.
Tax Treatment and Considerations
The tax treatment under state law of an LLC electing S corporation status varies. Talk to a tax professional familiar with your state laws before making a final decision to have your LLC treated as an S corp. Using an LLC offers more flexibility in entity design than a corporation, even with S corp compliance.