What Does it Mean to Have A LLC Taxed as a S-Corp?

Imagine this: You are a first-time business owner and have the idea to start your company as an LLC. You go to your accountant for tax advice and you are told that your LLC needs to be a S-Corp. Your accountant explains the details, but the only thing that matters is that you are told this set up saves you money.

An LLC and a S-Corp are two different types of business entities, each with its own set of rules. An LLC is owned and managed by members. Corporations are owned by shareholders and managed by a board of directors. A corporation can either be a S-Corp or a C-Corp. The difference between these two corporations is how they are taxed. Other than a few special rules for the S-Corp, the S-Corp and the C-Corp have the same legal structure.

But what does it mean to have an LLC that is a S-Corp? In this scenario, your accountant (or friends, family, etc.) is ACTUALLY telling you to have your LLC taxed as a S-Corp. LLCs have the flexibility to select its taxation and can elect to be taxed as a S-Corp. Many accountants find several tax advantages to having the LLC select a S-Corp taxation, so they recommend it to their clients.

Similarly, if you have not yet started a business and someone says you should create a S-Corp, they probably mean that you should start an LLC taxed as a S-Corp instead of actually starting a S-Corp. There is nothing wrong with starting a S-Corp, but a corporation has more operational rules to follow than an LLC. As a result, the far more popular choice for business owners is to create an LLC that is taxed as a S-Corp.

If you need help creating your LLC, or you have a corporation that you want to convert to a LLC, feel free to contact us and schedule a free business strategy session with us!

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