Discussion:Why do we elect SMLLC to be treated like corp?
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Discussion Forum Index --> Tax Questions --> Why do we elect SMLLC to be treated like corp?
| 22 March 2007 | |
| Usually for additional tax savings - specifically - payroll taxes - the corporation may pay you a salary that may be lower than the net profit that you now pay payroll taxes on... | |
| 22 March 2007 | |
| I’m not sure exactly how it works for llc, but I’ll take your word for it, Vbcpa. Thank you. I probably have to prepare a couple of returns for smllc, to see the difference. | |
| March 22, 2007 | |
| Louise, may I call you that?, here's the deal. Suppose a SMLLC/Sch. C is netting 80k and paying SE tax on all that. By becoming an S corp, if his reasonable salary is 60k, then we pay him 60k and that is all that is touched by SS tax. He's saving 20k * 15.3%, or 3k, which he can now use to fund his own SEP and deduct that, too! The cost of being a corp and filing quarterly taxes may run him 1-2k per year...but that's how it works. It won't work for someone whose net is close to a reasonable salary already. | |
TaxManager (talk|edits) said: | 22 March 2007 |
| But why not incorporate in the first place instead of becoming a SMLLC. Seems like you are paying 2x the money. Once to file to become and LLC and once to incorporate. I guess I am missing something | |
| 22 March 2007 | |
| They do it because JR told them there is a ratio they can take as a salary. | |
| 22 March 2007 | |
| Taxmanager...there is no "incorporation" of the llc...merely filing a 2553 to elect to be taxed as an S corp...it's legal status with the state does not change. | |
| 22 March 2007 | |
| You don't have to pay fees to elect to be treated as corporation - if electing to be an S corp you simply file the 2553 - no fees - | |
| 22 March 2007 | |
| JR1, yes you can call me Louise. I'm Louise. I understand the difference (and advantages) between s corp and llc. I just did not realize that when we are talking about election smllc to be treated like corp, we are actually making it a corp. Then I have to rephrase my question. How do I know what form to file 1065 or 1040 when a client is llc. | |
| March 22, 2007 | |
| 1065 if two or more members...
1040 if single member individual owner Unless an election is made to be treated in either case as a corp... | |
| 22 March 2007 | |
| single member llc - schedule c unless he elects to be treated as a corporation
two or more member llc - defaults to a partnership 1065 (unless they are in a community property state and it's a husband and wife- had this discussion yesterday) or they can elect to be treated as a corporation | |
| 22 March 2007 | |
| If it's a single member llc, by default he has to file form 1040.He has a option to elect as a corporation for tax purposes.If ther is more than 1 member than by default its a 1065, partnership unless they elect as a corporation for tax purposes. | |
| March 22, 2007 | |
| And that's the problem...it's kind of a dual status thing like clergy, which you can tell no one seems to understand. The LLC becomes TAXED as an S corp, even tho' legally it's an LLC. It doesn't become a corp unless you actually incorporate. | |
| 22 March 2007 | |
| How do you form an LLC? Once you register with the state as LLC, election for corporation is with federal.No need to incorporate again. | |
| March 22, 2007 | |
| People do this because they prefer the income tax rules of the C-Corp or S-Corp, but they also prefer the flexible legal structure of the LLC (no stock certificates, no annual meeting, no minutes, no board, charging order protection--supposedly). | |
| 22 March 2007 | |
| I filed 2553 form many times, and I just reviewed this form again. I did not find anything there related to LLC conversion to s corp. Does anybody do this?
As far as I understand if we convert LLC into s or c corp, we don't file 1065 anymore. I was trying to convert llc into corp once, and called NJ treasury for help. They told me that I can not convert. They said that I have to close LLC, and open a new corp. That's what I did. Does anybody know the other way to do it? And any way I’m still very confused about this LLC that is treated as corp. By NJ rules, LLC name has to have a suffix "LLC" at the end, and corp has to have "corp" or something. I know that every state is different, but I guess the main rules have to have the same foundation. | |
| 22 March 2007 | |
| The election is only for federal (and maybe state) TAX purposes...an LLC properly electing S Corp status will file an 1120S with "llc" as part of its name. | |
| March 22, 2007 | |
| Check the state tax rules for an electing LLC there as to what applies. | |
| 22 March 2007 | |
| Right. 2553 form is IRS form. How can I elect LLC to become S corp using this form?
There is no option there for LLC. Am I wrong? | |
| 22 March 2007 | |
| Louise...did you CLOSE LLC as you stated in the above post? If not, then all you do is file the 2553 with the IRS to be treated as an S corp...that is it. Now your state may require state filings of corporate returns after you do this.
If you DID close the LLC, then there are other steps you may need to take :) | |
| March 22, 2007 | |
| Just file the 2553 or else Kevin's gonna make me talk about domestic partnerships' filing requirements and whether they're SE taxable. Hint: 1099's should be issued. | |
| 22 March 2007 | |
| If the business is still an LLC and if you want it to be treated for federal tax purposes as an S Corporation then you file the 2553. On the form the name of the corporation will be the name of the LLC including the letters LLC. You have to follow the rules for the 2553 on timely filing just as if it were a corporation.
JR - :) lol | |
| 22 March 2007 | |
| I’ll tell you what I did. My client registered LLC himself, and started with about $30K revenue. In 2 years, his revenue became $2M+. He pays me for taking care of everything, including minimizing his tax payment. When I realized that his SE is going to be over the roof, after quick research, I closed his LLC and opened s corp. (NJ told me that conversion was not an option)
However, I have other clients, with potentially the same situation. And if I have to go through the same process again, I would like to do it the right way. Thanks everybody for your input. I appreciate it. | |
| 22 March 2007 | |
| Oh yeah....get rid of the stinking LLC's and LLP's and LL ANYTHINGS!! They just complicate the state mixing with the Federal government. I am considering writing my congressman and telling them to disallow the LLC EXCEPT for Sole proprietors.....they need the Limited Liability, but the others were good left alone...now it is the status quo...too many LLC's to deal with how the hell do you sift through the mess? | |
| 22 March 2007 | |
| Unfortunately, it’s not that simple just to close llc. In state of NJ corp has to pay $520 every year just for existence. If clients’ expected revenue is $25K, $520 is a big deal for him. He wants to have LLC to avoid this payment. But if he is lucky enough and his revenue is bigger than he expected, he ends up paying SE, that is much more than $520. It’s good if a client understands it and watches it. But sometimes they blame me for being a poor accountant. | |
| 22 March 2007 | |
| Dsglouise...be careful that what you are doing when you close down an entity and open a new one does not amount to the unauthorized practice of law... | |
| 22 March 2007 | |
| Glmpllc, would you please clarify what you mean by this. You scare hell out of me. | |
| 22 March 2007 | |
| See Discussion:Can CPAs Incorporate Clients? | |
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