LLC taxed as S Corp

Discussion in 'Business Operations' started by The landscaper, Feb 9, 2005.

  1. The landscaper

    The landscaper LawnSite Senior Member
    Posts: 845

    I was talking with my legal studies prof today. He was telling me that as a LLC you could be taxed as partnership or C-corp if you wanted. He was saying that you could not use the S-Corp. I could have sworn some of you were telling me that is how you have your companies setup. Whos gone wrong here?
     
  2. Turf Medic

    Turf Medic LawnSite Bronze Member
    Posts: 1,073

    It is my understanding that a s-corp is taxed the same as a sole proprieter. All of the income flows through to the owner(s). With the LLC you can choose how to handle the income. You can hold some of the revenue like a c-corporation or you can allow the income to flow through to the owner(s). At least that is how the paperwork read when we set up our LLC.
     
  3. tonygreek

    tonygreek LawnSite Gold Member
    Posts: 3,479

    your prof is wrong (don't you love the sound of that?). i think it's irs form 2553 that takes care of the election.
     
  4. The landscaper

    The landscaper LawnSite Senior Member
    Posts: 845

    Purpose
    To elect to be an S corporation, a corporation must file Form 2553. The election permits the income of the S corporation to be taxed to the shareholders of the corporation rather than to the corporation itself, except as noted below under Taxes an S Corporation May Owe.

    Who May Elect
    A corporation may elect to be an S corporation only if it meets all of the following tests:

    It is a domestic corporation.

    Note:
    A limited liability company (LLC) must file Form 8832, Entity Classification Election, to elect to be treated as an association taxable as a corporation in order to elect to be an S corporation.



    Is that what this is saying?
     
  5. lsylvain

    lsylvain LawnSite Senior Member
    Posts: 777

    LLC can be taxed either as Corp. Partnership, or Sole Prop. Depends on the situation. An LLC is a liability issue not a tax issue. I believe what your prof. was saying is that you cannot be an LLC and be taxed as an S-Corp.
     
  6. tonygreek

    tonygreek LawnSite Gold Member
    Posts: 3,479

    an llc CAN be taxed as an s-corp. if not, someone might want to notify the cpas of those of us who are set up in this manner.
     
  7. plateau lawn care

    plateau lawn care LawnSite Member
    from georgia
    Posts: 195

    Just incorporate as an s-corp. You can get it done here in ga for less than 1,000 $ or you can go through the steps yourself for free
     
  8. lsylvain

    lsylvain LawnSite Senior Member
    Posts: 777

    No, an LLC is not taxed as an S-Corp an S-Corp is and S-Corp. If you are an LLC you can elect to be taxed as a corporation then as a Corporation you can elect to become an S-Corp, then you are an S-Corp not an LLC.

    An LLC is a state designation not a federal one. LLC doesn't "exist" at the federal level or in several states.

    My question is, Why do you want to be an LLC and and S-Corp at the same time? Just pick one.
     
  9. tonygreek

    tonygreek LawnSite Gold Member
    Posts: 3,479

    seemingly by this logic, if you're an llc taxed as an sp, you're just a sole proprietorship, or partnership, or c-corp, or s-corp, so why not just form one of those? you said an llc can't be taxed as an s-corp. as you've since pointed out, it can, through a simple 2 step process.

    correct. it's disregarded in their eyes. i think we all know this, so is this a semantical or metaphysical discussion? :rolleyes:

    for this very reason, specific questions people ask on here about how they should structure their company are ridiculous. the complexities of each are not addressable for each specific application. any accountant will tell you that this is complicated set-up. for my company, it's a profit growth issue. i was an llc taxed as an sp. the reality of business growth, and the simple process of altering the tax structure were what best suited me. if you're familiar with s-corp distributions, as i assume you are, you understand. operating cash roll-over from tax year to tax year is another issue. another reason is the annual corporate paperwork that is not required when you go through the backdoor.

    i'm not an accountant, but my accountant is... :) if this option wasn't available while you were in school (i think it's fairly new), you might try searching the web for the strategic reasons or ring your favorite cpa up as i really have nothing else that think i can add.
     
  10. lsylvain

    lsylvain LawnSite Senior Member
    Posts: 777

    The point is you can be an SP and become a S-Corp you can be a partnerhip and become a S-Corp you can be a corporation and become a S-Corp and you can be an LLC and beocome a S-Corp. What you cannot do is be a SP and a Corporation at the same time or a Partnership and SP at the same time. You cannot be a S-Corp and LLC at the same time you are one or the other.

    You can be an LLC TAXED as an SP, or TAXED as a Partnership, or TAXED as a Corporation. If you are an LLC you can BECOME a S-Corp by first filing to be TAXED as a corporation then filing to BECOME a S-Corp.

    The main point I guess I am trying to make is that LLC has absolutly nothing to do with Income Taxes. Hence why you have to elect (or the IRS does it for you) to be taxed as one of the three business entities.

    I am an Accountant and I graduated #1 in my class in Accounting and business. You accountant most likely is interpreting the tax code and not taking it for what is says. Again it really doesn't matter because the llc doesn't "exist." pharaphrasing:

    "An LLC must elect to be taxed as a corporation to become an S-Corp." It does not say to be taxed as an S-Corp is says to become and S-Corp. That is as different as someone being treated like a women and actually becoming a women.
     

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