I’ll never be your beast of burden, I need no fussing, I need no nursing. -The Rolling Stones
I’m sure you’ve heard of S Corporations and Taxes. The benefit is they lessen the self-employment tax burden on LLC Members.
There are some disadvantages to S Corps and they are:
-may limit growth.
-must keep meeting minutes- sounds simple but it’s a large responsibility that should be taken seriously (I’ll have more on this in another post)!
-must pay reasonable compensation to owners.
-S Corps not treated equally at state level.
Check out the requirements of S Corporation status from the IRS: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
Currently, the SE tax rate is 15.3%. An S Corp could help by classifying some earnings as salary which decreases the amount paid for SE taxes. However, it’s key the owner’s are paid a ‘reasonable’ salary and submit payroll taxes and returns on their behalf. This is a HOT topic with the IRS and they look for it!
LLC’s are a great option for single member entities. Even multi-member LLC’s, members can deduct half of the total SE amount from taxable income. LLC’s are much less stringent and have less restrictions.
If you decide you’re ready for a change be sure you ask many questions!
Do you have personal assets?
Do you have personal liability?
Do you need to live off of the business profits each year?
Do you want to keep paperwork and administration simple?
Do you want to keep the business ‘forever’?
Remember: if you get a new EIN that is a totally new entity! You can’t just log into QBO and ‘update the EIN’. I’ve seriously had someone ask me to do that because they were not informed before they started the process. A new EIN means a new entity, which means a new set of books, which means new state payroll/sales tax accounts…you get the picture. It is not something to be taken lightly.
|Initial Filing Requirements||Annual Compliance Requirements||Registered Agent Required|
|S Corporation||Articles of Incorporation, Initial Report (State dependent), Publication Fees (State dependent), Filing of IRS Form 2553||Annual Reports (most states), Annual Meetings, Meeting Minutes||Yes|
|LLC||Article of Organization, Initial Reports (State dependent), Publication Fees (State dependent)||Annual Reports (most states)||Yes|
Recently, I’ve received so many questions about S Corp election and entity conversion. SO many that this is now a service I have decided to offer. Please contact me if you would like additional information.
Jordan Ilderton, CPA