frequently asked questions

Advantages of electing to have your LLC treated as an S corporation

Advantages of electing to have your LLC treated as an S corporation

Entities are created at the state level but taxed by the IRS at the federal level. LLCs are very common and popular entities due to the asset protection offered and simplicity of operations. The IRS does not recognize LLC as a taxable entity so LLC’s can elect how they want to be treated for the purposes of taxation. An LLC can elect to be treated as a partnership, an S corporation, or a C corporation. If an LLC has only one owner, it can also elect to be treated as a sole proprietorship.
Why would an LLC elect to be treated as an S corporation? There are a few benefits to electing to be treated as an S corporation:
• An LLC electing to be treated as an S corporation still enjoys the benefits of asset protection.
• Passthrough taxation on S corporations allow the income and losses of the business to pass through to the Members (owners).
• There are tax advantages when a Member is also an employee of the business. In the role of employee, a paycheck is earned from working in the business. The Member/employee also gets to share in the distribution of profits. Careful structuring of the payroll and distribution can save on self-employment taxes.
• Membership interests (ownership) of the LLC electing to be an S corporation are easy to transfer.

These are a few of the advantages of electing to have your LLC elect to be treated as an S corporation. If you would like to learn more about this, contact the Law Office of Roy Neal Linnartz, PLLC at 830-625-9300.