Yes. An LLC can be taxed as an S Corp, assuming it qualifies for S corp taxation status. An LLC can also be taxed as a C Corporation.
An LLC is a very flexible business type because it can be taxed as a corporation or S corp, c corp, sole proprietorship, or partnership. How the IRS views an LLC can be confusing for business owners.
By default, a single-owner LLC is treated as a sole proprietorship and a multiple-owner LLC is treated as a partnership. But LLC owners can file a form with the IRS to change this so the LLC is treated as a C corporation or S corporation for tax purposes.
Option 1: LLC electing to be treated as a C corporation (C corp)
If your LLC has one owner:
If the LLC has only one owner, the Internal Revenue Service (IRS) will automatically treat the LLC as if it were a sole proprietorship, a disregarded entity, unless an election is made for it to be treated as a corporation. An LLC may elect corporate tax treatment using IRS Form 8832 (Form 8832 Entity Classification Election).
If your LLC has more than one owner:
If the LLC has two or more owners, the IRS will automatically treat the LLC as if it were a partnership unless an election is made for it to be treated as a corporation. An LLC may elect corporate tax treatment using IRS Form 8832 (Form 8832 Entity Classification Election).
Option 2: LLC electing to be treated as an S corporation (S corp)
An LLC may elect S Corp tax treatment by filing IRS Form 2553 (Form 2553 Election by a Small Business Corporation). However, sometimes the LLC must file both Form 8832 (see Option 1 above) and Form 2553. To determine whether your LLC can file Form 2553 alone, or whether Form 8832 must also be filed, see page 1 of the Instructions to form 2553 or talk with a CPA or LLC attorney in your state.
Tips for an LLC Taxed as an S Corp:
Electing to have your LLC taxed as an S Corporation involves a couple procedural changes in paying and filing your taxes.
1. Quarterly Filings for an LLC Taxed as an S Corp
Keep in mind that if your business is treated as an S corp, it must pay estimated taxes. But this inconvenience is often offset by the tax benefit of an S Corp (self-employment tax savings).
2. Income Taxes at the End of the Year
Also, an S Corp must file different income tax forms at the end of the year (Which Forms Must I File?).
Shareholder-employees will receive two tax documents from the S-corporation at the end of the year: a W-2 wage statement (income as an employee) and a Schedule K-1 statement (income as an owner).
3. No Self-Employment Tax for an S Corp Owner-Employee
Shareholder-employees of an S-Corp (including an LLC taxed as an S Corp) do not pay Self-Employment Tax because their wages are reported on a W-2, with Social Security and Medicare taxes already withheld. By contrast, the owner of an LLC that is taxed as a partnership or sole proprietorship (not an S Corp) does pay Self-Employment Tax. Self-Employment Tax is figured at the end of the year on Schedule SE of IRS Form 1040.
4. Special deadline for new businesses seeking S corp election
If you form a new LLC, you have two months and fifteen days after you formed the LLC to file the S corp election with the IRS. For example, if you form a new LLC on June 1, you would have until July 15 to file Form 2553. However, you should file Form 2553 as soon as possible after forming an LLC to avoid cutting it close and missing the deadline.
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Ah, thanks so much Aaron. So the tax authorities would just know that the 1065 had become an 1120S filing? I guess based on the Form 2553 election we’ll file. Am I correct?
We are an LLC electing “S Corp” filing status with Form 2253. Do we just have our attorney amend our current Operating Agreement to include important elements like salaries, distributions and whatever else he deems legally necessary to protect all parties and remain in compliance? Bottomline do we need to have him create a new Shareholder Agreement or can we just amend our current Operating Agreeement. We are having our Tax Accountant file the necessary Payroll paperwork for the state of Georgia. Thanks in advance for your assistance. This a wonderful forum form lay people.
Great discussion. I guess I have a very basic question. What are the advantages of filing for your LLC as an S-corp versus as a partnership? Is there a better write-off for losses or expenses or ease of filing? My wife and I jointly own the LLC.
Bill:
There are many differences, so answering this question is fairly complex. I recommend you work with a local attorney to figure out which is best for your circumstances.
Aaron
Thomas:
I would ask your attorney about this because (1) I don’t practice in Georgia and (2) your attorney presumably does know Georgia law.
Aaron
Hello Aaron,
I formed an LLC last spring (2011) that is owned by 2 members, my husband and me. The entity bought a piece of land that it will develop. I have not yet filed a federal return. I would like to file as a Sub Chapter S corp. I did not make any election for classification. Is it too late to file for Sub Chapter S classification and do I also need to file Form 8832?
Etta:
I believe March 15 (today) is the deadline for filing an S corp election to be effective in 2012. You should contact a CPA or attorney immediately.
Aaron
I’m looking to start a business in an extemely competitive field. Therefore, business might be slow to coming by and income may be limited. I really like the advantages of the ‘s corp’ (i.e. no self-employment tax) However, if income is low wouldn’t the advantage gained by ‘no self-employment tax’ get wiped out with having to file a corporate tax return versus a sole p. or partnership? Would I be better off filing as a sole p.?
Hi,
We are a new start-up/small business that plans on incorporating in the next month or so, as an LLC, filing S-Corp status. However, since we are past the March 15th deadline, is it too late this year to receive the S-Corp status for 2012?
Thanks,
Steve
Steve:
If you form a new LLC, you have two months and fifteen days after you formed the LLC to file the S corp election with the IRS. For example, if you form a new LLC on June 1, you would have until July 15 to file Form 2553. However, you should file Form 2553 as soon as possible after forming an LLC to avoid cutting it close and missing the deadline.
Aaron
If I haven’t yet registered my company as LLC, would it be more simple if I just register it as S Corp? If so, does the March 15th deadline mean anything to me?
Thanks!
Simon:
The deadline applies to corporations and LLCs.
I’ll explain. You cannot “form” an S Corp, per se. You form a corporation, and then elect to have it taxed as an S corp using the process noted above. Likewise, you form an LLC, and then elect to have it taxed as an S corp using the process noted above.
Aaron
Aaron,
What is the reason one would file as LLC with S-Corp Status vs outright at S-Corp? Is it the same reasons you would file LLC over C-Corp?
Thanks
When will this 2 month 15 day clock start for electing to file taxes as a S-Corp.
When i send the papers to secreatry of the state for forming a LLC or When a get a official response back from SOS that my LLC is all set.
Jason:
The 2 month 15 day clock starts on the date your LLC is formed, which will be stamped on your Articles of Organization when you receive them back from the Secretary of State.
Aaron
I am a single-member llc filing as an s-corp, located in the Virgin Islands. I am trying to verify which tax documents I need to file and have had no luck on the local level. I called an accountant who told me I need to file the 1125, so I researched further and found that is not the form and llc filing as an s-corp should file.
Any and all help will truly be appreciated.
Sam:
File Form 2553.
Aaron
My partner and I formed an LLC in November of 2001 but did not start doing business until March of 2012 because of start up issues. Can I still form an S-corporation for tax purposes based on the date we stated doing business?
Wife and I have regular W-2′s from our employers totalling around 190k (105k+85k) gross. We also have a LLC and will make more than 75k this year. And atleast next couple of years. Should we become an S-corp to reduce our tax liabilities or remain a LLC? Even after reading up the internet we are still unable to decide…any ideas for us?
Jay D:
With annual income of $190,000, you should consult with an attorney or CPA about your situation. The small cost of a tax analysis meeting (under $300) would likely save you far more than that each year. When income gets to that level, there are more options you should consider to reduce your taxes. If you are in Minnesota, you are welcome to contact our firm to schedule a meeting.
Aaron
Thank you SO much for your informative article, and in particular, its clarity. My husband and I were contemplating starting as an LLC in Florida, but were told about S-Corps instead. I wanted to be informed when we met with a CPA and attorney about our choices. Despite two weeks of searching the net, I couldn’t find any specific, clear information until I found your site. Now I know we can probably do both, and understand the differences. Again, thanks very much. The Twin Cities is very fortunate to have you.
Good evening and great posts. I have just elected to take on an investor in a business venture I have been dedicated to forming. Ideally, we would like to take advantage of the s corp taxation status and grow the company organically. I noticed that board members and directors are needed to be appointed. Is there a way to accomplish this status without bringing aboard more people or offering up more of a stake in the company?
Andrew:
Board members are known by many terms including governors, directors, or members of the Board of Governors, or members of the Board of Directors. Board members are not necessarily owners. However, small companies usually only have one director: the owner of the company. However, there is nothing wrong with having no owner on the Board of Directors, except the fact that normally owners want to be on the board.
Aaron
Hi Andrew:
I just received my SMLLC for Texas today. I would like to keep my personal IRS returns separate from the single member LLC. I am filing an 8832. Should I file as a association taxable as a corporation? (Part 6a?).
Your site is awesome!!
Aloha, just to clarify, you cite 2 months and 15 days to file S corp tax status forms but your example seems to imply 1 month and 15 days, right ?
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