Why you should consider switching from LLC to S Corp
One major advantage of an S corporation is that it provides owners limited liability protection, regardless of its tax status. Limited liability protection means that the owners' personal assets are shielded from the claims of business creditors—whether the claims arise from contracts or litigation.
S corporation advantages include:
Key takeaway: Having your LLC taxed as an S corporation can save you money on self-employment taxes. However, you will have to file an individual S-corp tax return, which means paying your CPA to file an additional form. An S-corp is also less structurally flexible than an LLC.
The Bottom Line. The S corporation is the only business tax status that lets you save on Social Security and Medicare taxes while avoiding double taxation. An LLC taxed as S corp offers benefits of a corporation while also providing flexibility on income treatment.
The IRS requires S Corp shareholder-employees to pay themselves a reasonable employee salary, which means at least what other businesses pay for similar services. ... S Corp shareholders still must pay income tax on their distributions.
S-Corp Tax Deductions
Ordinary business expenses such as rent, taxes, advertising, company-provided employee benefits, depreciation and interest can be subtracted from profits and income to arrive at the net income for the business. If this net income is negative, it is passed through to shareholders as a deduction.
Technically, you are self-employed if your income comes from business you engage in as an individual or sole proprietor vs LLC, or as a general partner in a business. ... If you own and operate a corporation, however, you are not technically self-employed, but an owner-employee of the corporation.
A little insight into the pros and cons of becoming an S Corporation may help in your decision-making process.
S corps, defined
S corps are considered pass-through entities, which means that your business doesn't pay taxes on the profits you earn—you, the owner do. Unlike C corps, where both the business and owners pay income taxes, an S corp avoids double taxation as a pass-through entity.
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