Johns Creek/Lawrenceville CPA: Incorporating and /Flow Through Entities: S Corporations vs. LLC's...Not all Entities Are Created Equal
For the most important tax issue you will ever make you will want to be sure to seek out wise counsel who can best guide you through which entity type will be best tax-wise for your business. Though you are not locked into any selection forever, your obstacles and nuances in changing is something you would rather get right the first time than have to re-visit the issue at a later date. Frequently while serving as a Georgia CPA, I have personally witnessed dozens to hundreds of business owners incorporate as a GA LLC who should have opted to be a GA S Corporation.
Federal Taxation of S Corporations and LLC's
Generally speaking both S Corporations and LLC's will pay the same federal and state income tax. However the nuances exist in the area of payroll taxes and self-employment taxes and the filing of the actual year-end tax returns for each entity. For example, if you are a single member LLC then you will file a Schedule C as part of your personal return. Then on all of those net earnings you will owe the self-employment tax component. If there are more than one owner of the LLC, then a separate partnership return, a Form 1065, must be filed with an attendant K-1 to reflect each owners share of the proportionate earnings.
However, if you were an S Corporation then you will file a separate tax return, a Form 1120S. All active S Corporation owners are required by tax law to take a fair and reasonable salary, after which, they may also take shareholder distributions that are devoid of the FICA/Medicaid taxes or self-employment taxes, which would be due if the business were an LLC.
S Corporation Qualifications
The rules of being an S Corporation are relatively straightforward and there are four of them. They include that you must have less than one hundred shareholders, all of your shareholders must be U.S. citizens or resident aliens (no corporate ownership allowed), you must have one class of stock, and you are generally required to have a calendar year-end.
Converting an LLC to an S Corporation
An LLC if it meets the above criteria, then it may convert over to an S Corporation for tax purposes. Generally this election is a fairly straightforward if it is done within seventy-five days of the start of the tax year to which it relates. However, if you fail to meet this deadline working with a well trained and seasoned CPA familiar with such matters can assist in following specialized procedures to address these later filings. For LLC's that convert over to an S Corporation for tax purposes remain an LLC for all other legal purposes.
To read more and see which entity type is best for you visit http://www.hiscpa.com/article2.html
If you need IRS tax forms that those listed on their web-site, you can reach the Taxpayer Services Division at email@example.com or 404-417-2300.
Contact HIS CPA PC (A Christian CPA Firm) today. www.HisCPA.com We advise clients on: IRS representation, Offer in Compromise, Tax Problems, Incorporation in Georgia, Corporate & Personal Income Tax Returns, Part-time/Virtual CFO/Controller, Business Planning, Back Taxes, Business Acquisitions/Sales, Forensic Accounting, Business Valuations and Bookkeeping.
To learn more about addressing IRS Tax Issues and Back Tax Returns visit http://www.hiscpa.com/working-with-the-irs.html