Does your business currently have an LLC tax status? If so,
you should know that it could actually be quite beneficial for you if you were
to choose to file an election to have your business taxed as a corporation or
an S corporation.
If you do ultimately choose to make this change, then be
aware that the legal status of your LLC will stay the same. The only thing that
will change is your taxes and your tax status in general.
LLC Status
Businesses that are currently classified as LLCs (limited
liability companies) are not considered “taxing entities” by the IRS. As such,
these businesses simply pay income taxes based on their membership structure. Single-member LLCs, for example, pay income taxes as a sole
proprietorship, while multiple-member LLCs pay income taxes as a partnership.
Corporation Status
If you are not happy with your business’ LLC status as
described above, then you could fill out Form 8832 to change your LLC to being
taxed as a corporation.
S Corporation Status
If corporation status is not the right fit for you either,
then you may want to see if you are eligible for qualifying for S corporation
status.If you are eligible, you will benefit by avoiding double
taxation and also by being viewed, at least for tax purposes, as an employee of
your own business. If you qualify, you can file
for S Corporation Tax Status by filling out Form 2553. Even if you think, based on this
information, that you have found the right “filing fit” for you and your
business, be aware that any change in filing status will have implications for
which you may or may not be prepared. As such, before making any decision about
how you should file or making a change, be sure to speak with a tax adviser who
understands you and your business and its goals and needs.
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