How to Change an LLC to an S-corp

Nov 16, 2021

Converting an LLC to an S-corp may seem like a daunting task, but it’s really not. Not when you have the whole process outlined in this article!

If you’re wondering how to change an LLC to an S-corp, you’re probably already aware of the outstanding S-corp benefits. But how can you be sure it’s the right structure for you, and how can you make the switch? That’s where our experienced tax and business attorneys come in! With the right help, you can convert your LLC to an S-corp hassle-free.

Benefits of S-corp vs. LLC 

An LLC is a business entity, while S-corp is a tax classification. That means an LLC can choose to be taxed as an S-corp without changing its underlying business structure. It doesn’t matter whether you’re a sole owner or have multiple LLC members.

As an LLC owner, you cannot be your own employee and must be subjected to self-employment tax of about 15.3%. With an S-corp, you are both an owner and usually required to be an employee as well. This can provide tax savings, as an employee’s salary can be deducted as a business expense and the profits of the S-corp can “pass through” to you without being subject to self-employment tax.

An LLC owner’s taxes are unpredictable; as profits grow, so do your tax obligations, and those numbers could change a lot from year to year. But an S-corp owner’s salary is usually pre-determined for a specific period of time, so this tax election can make your tax bill a little more predictable.

With an S-corp, the leftover profits after payroll and expenses can be taken as cash distributions simply by transferring funds from your business bank account to your personal bank account. Within certain limits, these distributions can be tax-free; ask our experienced tax attorneys for more information on how this works!

But on the flip side, LLCs are usually better for rental properties and companies dealing largely with cryptocurrency. With an S-corp, distributions of appreciated assets typically trigger a taxable sale.

S-corp status may not be right for everyone, but once you reach a certain level of self-employment income, it can save you thousands of dollars on taxes.

Still not sure whether an S-corp is right for you? Reach out to our tax attorneys for a confidential consultation!

How to Change Your LLC to an S-corp 

Wondering how to form an S-corp if you have an LLC? It may take a few steps, but it is by no means complicated.

You need to file a specialized tax form to make an S-corp election. This form, called the S-corp Form 2553, must be completed by all shareholders involved. However, there are some requirements to meet to elect for an S-corp status, such as:

  • Your company must be a U.S. entity
  • It should be composed only of allowed parties (individuals, estates, some trusts, etc.)
  • The number of company shareholders should be less than or equal to 100

 With that said, the following are some factors that can make you ineligible to make the S-corp election:

  • If the shareholders are corporations, partnerships, or non-U.S. residents
  • If your corporation business is a domestic/international sales company, an insurance company, or a certain financial institution

Get in touch with Gordon Law Group for help filing Form 2553. Our attorneys will ensure you don’t miss a single step in the process!

Ready to Get Started?

Now that you’re familiar with the process, you can easily convert an LLC to an S-corp. But hiring a professional is the best practice as it will give you the surest results. So reach out now to enlist the help of Gordon Law Group’s accomplished tax advisors!


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