Once you’ve established a Limited Liability Company (LLC) in your respective state, you may elect to have your business taxed like an S-Corporation. To do this, you must complete Form 2553, furnished by the Internal Revenue Service (IRS). This election may provide tax-planning benefits to you and your business, and is a worthy consideration for anyone planning to establish an LLC.
For an LLC, electing S-Corporation taxation means the business will be legally identified as an LLC, but will be taxed by the IRS as an S-Corp, which effectively avoids double taxation. Instead, the LLC will have what’s called pass-through taxation; the business’ income is only taxed once as income to the owners.
This type of tax election marries the operation and administrative benefits of an LLC with the financial flexibility of an S-Corporation. It is especially helpful to LLCs that operate high payroll taxes (SECA).
To file form 2553 with the IRS, you will need to check EIN number for your LLC. An Employer Identification Number or EIN is a unique number furnished by the IRS and is used to identify your business and its tax responsibilities.
If you wish to elect S-Corporation taxation for your LLC, you’ll need to apply for an EIN to complete Form 2553.
A federal EIN application for an LLC is the same application form used by all other types of business entities to acquire this important tax ID.
The easiest way to request an EIN for your LLC is to apply online. Online applications are simple to complete and are usually fulfilled within 24 hours.
Remember, LLC formation is authorized by state statute, and must be registered with the state’s respective Secretary of State before you can elect S-Corporation tax status.
If you are trying to make life easier for yourself when starting a business, you can elect S Corporation taxation. If your LLC operates an active trade or business, the S corporation will be the best way for your business to be treated for tax purposes.
The LLC is a business structure authorized by state statutes that provides limited liability to the corporation. With the LLC, the individual member will report profits and losses on federal tax returns. This can help the corporation avoid the steep cost and complications of double taxation.
The LLC offers plenty of benefits for the business owner, including limited liability and pass-through income. You can enjoy more time to run your business, as running an LLC means you will have fewer formal meetings and record-keeping requirements. The IRS will treat the LLC as a sole proprietorship for tax purposes.
When you want to learn how to form an LLC taxed as an S corporation, make sure you have easy access to Form 2553. Once this work is completed and approved, your business will exist separately from the owner. This will allow you and the other business owners to receive wages and compensation.
The LLC electing S corp is the perfect way to create more benefits for your business for tax purposes. If your business is an LLC rather than a corporation, you will have fewer filings, fewer forms, and start-up costs. When it comes time to do your taxes, you will not be double-taxed.
Before you decide whether your LLC should elect S Corporation taxation, make sure to look at the factors that go into this decision. Each can have short and long-term benefits for your business. For more information on LLC and S Corporation taxation, contact us today.