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Benefits of Having a LLC Taxed as a Corporation

Registering your business as a limited liability corporation (LLC) offers you a lot of flexibility at tax time. You may choose to have your LLC taxed as a partnership, a sole proprietorship, or as a corporation. By default, LLCs are taxed as either a single-member LLC or a multiple-member LLC, but many LLCs are choosing to be taxed as a corporation. Electing to have your LLC taxed as a corporation has many benefits for you as an individual taxpayer. However, navigating the process and determining what is best for your business can be complicated. Here’s what you should know about the benefits of having an LLC taxed as a corporation.

Save Money on Taxes

One of the biggest benefits of having your LLC taxed as a corporation is that you’ll save money on taxes if your income is particularly high. The tax rate for sole proprietorships and partnerships is higher than the tax rate for corporations, especially at the higher end of the tax table. In an LLC, you, as the owner, will be taxed on both your income or salary, and profits of your company will count as part of that income. If you elect to be taxed as a corporation, however, your profits will not be considered part of your income, so you have less money that will be taxed. Additionally, filing as a corporation–specifically as an S Corporation, will allow you to save for Medicare and Social Security in a way that other forms of business can’t provide. In short, if your personal income is high, then having your LLC taxed as a corporation will remove business income from your personal income when it’s time to file your taxes. Now, it might make logical sense that if you didn’t pay yourself any salary, you wouldn’t be taxed on Social Security and Medicare taxes; however, the IRS doesn’t allow this. You will, in fact, have to pay yourself a reasonable salary. Even so, filing as an S corporation may save you money and help you keep profits in the business.

Should You Have Your LLC Taxed as a Corporation?

First of all, you need to know how your LLC is already classified. For instance, if you’ve been filing as and LLC, you’ll have to go one route to electing to file as a corporation; if you’ve currently been filing as a partnership, however, you’ll need to go a slightly different route. If you choose to have your LLC taxed as a corporation, you may be subject to double taxation, since you’ll need to pay taxes on any personal income you receive as dividends as well as any income generated by the corporation. You should also determine if your business even qualifies to be taxed as a corporation. It has to meet several criteria regarding the shareholders and class of stock.

A lot of the decision will depend on how many employees you have (if any), because the new manner of filing taxes will affect them as well. You’ll need to clearly know if you’re distributing profits to the members, if any of them have shares in the company, and if you’re offering employee benefits. Before you decide whether to have your LLC taxed as a corporation, spend plenty of time with your tax professional or CPA working through all the potential scenarios that could arise as a result of this decision.

Making the Election

In order to have your LLC taxed as a corporation, you will need to file IRS Form 8832 for Entity Classification Election, and you’ll need to do so according to a specific timeline. You’ll need to decide if you will file as a C Corporation or as an S Corporation. A tax attorney at Mackay, Caswell & Callahan, P.C. can help you determine which process is best for your business and can ensure that the appropriate documents are filed.

Of course, you’ll want to make sure that this is the right choice for you. By moving to being taxed as a corporation, you, as the owner, will face double taxation, which you wouldn’t face if you simply filed as an LLC. Your tax attorney will help you determine which avenue is the best for you and your company.

Contact An Experienced NYC Tax Attorney

Choosing between an LLC and a corporation is one of the most important decisions you’ll make for your business, but there’s certainly a lot to consider in making this choice, and there’s a lot of work to do if you decide to change how you file. This is why it’s important to make sure you have the experienced tax attorneys of Mackay, Caswell & Callahan, P.C. on your side to help navigate the process, especially when it comes to taxes.

If you have questions or concerns regarding your business and taxes, we can help. Fill out our online contact form or call 844-MCC-4TAX (622-4829) to speak with an experienced NYC tax attorney or from one of our other offices in Albany, Rochester, Syracuse, Utica, and Watertown.