We’ve all heard about the benefits of filing an S Corp election for your C Corporation. You get to avoid paying federal corporate income tax, when with a C Corporation you are subject to double taxation. Filing for an S Corporation status has always been an easy solution to getting out of double taxation.
Even as a Corporation, your business has to qualify for an S Corp election:
In order to qualify for S Corporation status, your Corporation must have less than 100 shareholders and issue only one class of stock. If your Corporation qualifies, any income earned by the corporation gets to pass through the business, untaxed, directly to the shareholders. The business owner, though, still has to pay personal income taxes. Though remember that the pass-through structure is only guaranteed at a federal level. You should check with your state’s secretary or department of corporations to see whether or not the state respects the pass-through structure. Though most states do, some states still require some tax to be paid on corporate income.
But what about LLCs? Can they file an S Corp Election?
Absolutely! The benefits of having taxes passed along to the shareholders and the once a year filing requirement apply to LLCs as well. For an LLC to elect an S Corporation status, it must file the IRS S Corp Form 2553. Although, keep in mind that the election must be filed within 75 days of your LLC’s formation, or within 75 days of a new year.
Though, an LLC already has the benefit of pass-through taxation, so why would an LLC want an S Corp Election?
It’s common for a small business owner to want to file as an LLC for state law reasons, but desire an S Corporation election for other specific tax purposes. For example, a business owner could want S Corp status because a partner in a partnership is subject to self-employment tax on their distributive share of the partnership’s trade or business income, when with an S corporation, the owner is not subject to self-employment tax on their pass-through income or distributions from the S corporation.
Get all the benefits of an LLC (easy start up, simple management structure, and inexpensive to start) along with the benefits of an S Corporation today!
Have any questions or want to get started on your own S Corp Election? Visit us at www.mycorporation.com or give us a call at 1 (877) 692-6772!