Changing from LLC to S Corp - How does it affect taxable year?

5 Replies

Hey guys, so we are changing our LLC to an S Corporation for our business entity type this year. We were likely going to do this in February of this year, 2018. My questions:

1. Does changing from an LLC to S Corp affect 2018's taxes? Will each day of 2018 that we still operate as an LLC be taxed differently than when we change into an S Corp? Unfamiliar with how this works for a taxable year. Guessing the entire year is treated like we were an S Corp the whole time once we change entity types.

2. I know there are more hoops with an S Corp like corporate meetings, reasonable salary etc... but is there anything you guys can warn me about with an S Corp that we should be prepared for? We are operating in the state of Oregon.

3. Any other advice you guys have on changing from LLC to S Corp would be a huge help.

Thanks all and happy new year.

You don't have to "change" from an LLC to an S-Corp.

You can simply keep your LLC and elect to be taxed as an S-Corp.

I own (3) S-Corps and have had no issues at all.

Just get a good CPA for your taxes. It's rather simple and straight forwards.

@Chris M. When you file form 2553 it will affect all of 2018. What type of business are you running? You will eventually have to get payroll set up to take a reasonable salary, as you suggested. Highly recommend using a payroll company that handles payroll tax filings as well, it will save you time! 

Hey, Brian so if I keep it as an LLC but file taxes as an S Corp, can I avoid doing payroll or reasonable salaries etc or is that still a requirement? We are purely online retail so would like to avoid payroll if I can.

Definitely do an LLC taxed as an S Corp. You will be an S Corp for all of 2018.

You still need to do salary. There’s no S Corp scenario where that isn’t a requirement.  It’s how they get back a portion of the taxes you are saving. You do avoid the necessity for corporate meetings, etc. 

As someone else said above you absolutely want to use a payroll company for salary. Don’t try and do that yourself. 

When you say online retail are you talking ecommerce?

Hey, Josh thanks for the reply. Yeah it's an e-commerce company. Basically what I've been told from multiple sources is that if you know your profits are going to exceed $40,000 it makes more sense to be taxed as S Corp to avoid self employment tax.

So can I wait until we are doing our taxes to file them as an S Corp or do I have to submit paperwork of some kind before I can do that?

Also any payroll companies you can recommend would be great. Is there really no way around that? Even with an online business that uses all virtual contract workers we have to use payroll to file taxes as an S Corp?

Thanks again for all the insights guys really appreciate it.

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