Choosing S Corporation Status for Your Limited Liability Company

Combine the Benefits of an LLC with Those of an S Corporation

If you’re contemplating setting up a new business entity, you may think that you have to choose between establishing a limited liability company and receiving the tax benefits of an S corporation. However, what most people don’t know is that you can get the flexibility of an LLC with the tax benefits of an S corporation. How does that work?

First, it’s important to understand that, for federal income tax purposes, there’s no option to be taxed as a limited liability company. Instead, for tax purposes, an LLC must elect whether it wants to be treated as a sole proprietorship, a partnership, or a corporation. If taxed as a corporation, an LLC is considered a C corporation (and subject to a corporate tax), unless it elects to be treated as an S corporation. Accordingly, an S corporation is a tax election—it is not a type of business.

Though it’s not common for an LLC to elect S-corporation status for tax purposes, there are situations where it may be beneficial, often in relation employment taxes. If the owners of an LLC elect S corporation status, they are treated as employees of the company, rather than owners. As such, the members’ income is not subject to SECA (self-employment) tax; however, they must take a salary and pay payroll taxes on the salary.

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At MCIS Law, PLLC, in Stafford, we provide comprehensive counsel to startup and existing businesses in southeast Texas. For a confidential consultation with an experienced and knowledgeable lawyer, email us or (346) 297-0121 We are currently communicating with clients by phone, text message, or videoconference. We accept all major credit cards.