LLC to SCorp?

Dmjones414 Member Newcomer
edited January 15 in Filing my taxes

I am starting an LLC and want to be able to take all the expenses possible as well as not have any personal liability for losses or gains from new company. Should I choose SCorp?


Best Answer

  • RyanEA
    RyanEA Member Level 2
    Answer ✓

    Your question is legal in nature and I recommend that you consult with a licensed attorney. Here are some basics of an LLC and S-Corp for tax purposes

    Single Member LLC:
    1) Reported on the Schedule C on your personal income tax return (1040)
    2) All profits from the LLC will be subject to Self Employment Taxes

    1) Forming an S-Corp with the state doesn't automatically make it an S-Corp for federal taxes, and an election form MUST be filed with the IRS and accepted. Please note that some states require a SEPARATE S-Corp election filing, such as New Jersey
    2) A business tax return is required to be filed (1120-S) which will create an form K-1
    3) You will report the K-1 information on your personal income tax return (1040)
    4) You are required to take a reasonable compensation through payroll

    Choosing the S-Corporation will require much more costs for processing the required payroll as well as the annual 1120-S tax return. Generally, the associated expenses of the S-Corporation may not be worth it unless you have a LOT of profits (that are subject to Self Employment Tax).

    An option is to form an LLC and then consider making an "S-Election" for the LLC to be taxed as an S-Corporation, at a later time.

    Again, I highly recommend consulting with a licensed attorney to determine the type of entity to create, in addition to a tax professional who can guide you with making an S-Election and remaining compliant.