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Electing S Corporation Status For A Limited Liability Company: What You Should Know

Limit of S corporation status as an LLC under the Income Tax Code: 30% After 15 years, an S corporation can elect S corporation status. LLC electing S Corp Tax Status: A Tax Plan You May Not Know In January 1997, Congress enacted the Revenue Procedures Act to change the rules for certain small businesses. The procedures, known as “the Trusts Amendment,” created new tax rules for small companies and S corporations.  The procedures provided that if an S corporation elects S corporation status, then an election by an S corporation may not be made within a calendar year with respect to the same share of stock. The procedure also provided that if a taxpayer wishes to elect S corporation status, and elect S corporation status within a calendar year, an S corporation may not elect S corporation status within a subsequent calendar year without the consent of the entity. Although, the Trusts Amendment went into effect March 1999, you may also have the opportunity to make an election to S corporation status. When an LLC decides to elect S corporation status, it does so under the current rules of the income tax code. As such, the procedures apply the current rules to LCS as well as corporations. However, as noted above, a corporate election is not allowed unless the LLC member makes it. LLC Electing S Corp Tax Status: A Form You May Not Know The LLC must file a federal income tax form 1120-S, U.S. Income Tax Return for an S Corporation and S corporation laws to make the election. LLC Selecting an S Corporation Status: What You Need to Know When choosing an S corporation as an electing S corporation, the following considerations should be taken into consideration: 1) Are you a limited liability company or a corporation? a) If you are a corporation, you should choose S corporation since the income tax on the share of stock you transfer to the corporation is not subject to income tax. b) An LLC may elect to be taxed as a corporation, for tax benefits. An LLC elects to be taxed as a corporation if its members have the option to receive stock in the corporation without having to hold stock. Note: An exception to the “no stock option requirement” applies to an S corporation if the corporation has a “10% option” policy or “30% stock option policy”.

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FAQ - Electing S Corporation Status For A Limited Liability Company

How does an LLC elect S corp status?
To elect Corporation status, the LLC must file IRS Form 8832 - Entity Classification Election. To elect S Corporation status, the LLC must file IRS Form 2553 - Election by a Small Business Corporation.
Should an LLC elect S corp status?
Although being taxed like an S corporation is probably chosen the least often by small business owners, it is an option. For some LLCs and their owners, this can actually pra tax savings, particularly if the LLC operates an active trade or business and the payroll taxes on the owner or owners is high.
How do I change my LLC to an S corp?
For federal tax purposes, you can simply make an election for the LLC to be taxed as an S-Corporation. All you need to do is fill out a form and send it to the IRS. Once the LLC is classified for federal tax purposes as a Corporation, it can file Form 2553 to be taxed as an S-Corporation.
Can a single member LLC elect S corp status?
As a single member LLC, you can elect to be taxed as an S-Corp as long as the election is made no more than two months and 15 days after the beginning of the tax year you want the election to go into effect. You make the election on form 2553.
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