LLC Taxed as a Corporation? Only if You File the Right Documents!

Seems like not a day goes by when I’m not answering questions for someone about their LLC. And that’s great! We love to answer questions and help people – that’s one of the fun parts of this business (really!)

One of the biggest areas of questions comes from LLC owners who wonder where their tax savings are. They were told to start an LLC, either by friends, colleagues or information on a website, but aren’t seeing the difference financially, and want to know why.

Usually, the why is pretty simple: it’s because those owners did not make the correct tax election with the IRS. Without that, you are only doing half the job (and getting half the benefit).

Here’s how it works:

  1. Create your LLC with the appropriate Secretary of State’s office
  2. File for your EIN (also known as an Employer Identification Number, Tax Identification Number, Tax ID Number or TIN) with the IRS
  3. File your S Corporation or C Corporation election with the IRS (Form 2553 or 8832)

It’s #2 and #3 that get people confused – especially #3. Registering for your EIN with the IRS isn’t enough by itself. If that’s all you do, the IRS will treat your company as either a single owner, disregarded entity (i.e., a sole proprietorship or Schedule C, or a Schedule E filer), or a partnership, if you have 2 or more owners.

If you want your LLC to be taxed as either a C Corporation or an S Corporation, you have to take another step, and file a separate, specific tax election. There’s also a time limit to file these papers, but you can get around that if you’re late, especially before your first tax return has been filed.

Your LLC is an amazingly powerful business tool. Used properly, it can help keep you safe from personal liability and to save money on your taxes. But you can’t get all those great benefits if you haven’t set it up right. Talk to your tax preparer, or contact us, if you want help with your C or S Corporation IRS filing.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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