Author Topic: Creating an LLC, Choosing to be taxed as an S-Corp  (Read 597 times)

kyle

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Creating an LLC, Choosing to be taxed as an S-Corp
« on: March 23, 2017, 10:32:35 AM »
I'm looking to start up a business which will eventually be my only source of income and will hopefully earn enough to have this conversation. I've had two LLC's in the past and I like their flexibility and ease of ownership. From what I understand online, there is a major self-employment tax benefit to owning an S-Corp however. The downside seems to be (significant?) paperwork and other corp-related requirements that would be nice to avoid. I recently came across the idea of starting an LLC and choosing to be taxed as an S-Corp. It seems like this avoid all of the hassle of the Corp but get's all of the benefits of the LLC. Too good to be true? Why wouldn't everyone do this?

Brooks McCarty

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Re: Creating an LLC, Choosing to be taxed as an S-Corp
« Reply #1 on: March 23, 2017, 04:19:07 PM »
There was a good primer for this topic in January on WealthyAccountant.com:

http://wealthyaccountant.com/2016/01/28/the-llc-vs-the-s-corporation/

Good luck sir.

kyle

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Re: Creating an LLC, Choosing to be taxed as an S-Corp
« Reply #2 on: March 23, 2017, 04:55:47 PM »
Hi Brooks, I think that article describes the tax differences, but didn't really talk about LLC's being taxed as S-Corps.

KeithTax

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Re: Creating an LLC, Choosing to be taxed as an S-Corp
« Reply #3 on: March 23, 2017, 07:04:44 PM »
Kyle, LLCs are taxed anyway you choose. They default to a sole proprietor (or partnership if more than one owner). You can elect to be treated as a corp and then make an S election. S corps pay 60% of profit as wages to owners as a safe harbor, the rest flows to the personal return FICA tax free. There are other benefits too. You must pay a W-2 wage to the owner.

You said:

I recently came across the idea of starting an LLC and choosing to be taxed as an S-Corp. It seems like this avoid all of the hassle of the Corp but get's all of the benefits of the LLC. Too good to be true? Why wouldn't everyone do this?

Not too good to be true. And many people do.

Lawyer-Human

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Re: Creating an LLC, Choosing to be taxed as an S-Corp
« Reply #4 on: March 23, 2017, 07:16:17 PM »
Yes, there was some clarification in the comments of the article: "The comparison is between an LLC without the S Corp election and an LLC with the S Corp election, which follows S Corp tax laws. When you start a business an LLC is a good way to start. Unless you are certain your profits will be high enough you should not elect for S Corp status. You can always elect later."

Many people do make the S-corp election...especially after a healthy, surprise dose of the Self-Employment Tax.
-Colin

kyle

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Re: Creating an LLC, Choosing to be taxed as an S-Corp
« Reply #5 on: March 23, 2017, 08:14:27 PM »
Thank you everyone!