There is no doubt that limited liability companies are the most popular business structure in the United States because of their unparalleled benefits.

One of the major benefits of forming an LLC is the flexibility in taxation. An LLC allows business owners to choose how to have their LLC taxed. It can either be taxed as a sole proprietorship, partnership, or corporation.

If you want to save your money on self-employment taxes, It is a good idea to change your LLC to S Corp. This is a complete guide to Changing an LLC to S Corporation. 

With this guide, you’ll learn the requirements of converting an LLC to an S Corporation and how you can do that.

In this guide, we’ll explain how to convert your LLC into an S Corporation and also the requirements you needed to carry it out.

What is an LLC?

An LLC stands for limited liability company, a legal business structure recognized by the state of Wyoming in 1977.

It is relatively new and one of the most popular business structures in the United States. In fact, 35% of US businesses register their business as an LLC.

It is one of the most popular business structures in the United States because of its unparalleled benefits such as limited liability, easy to set up with less paperwork and legal formalities, inexpensive and various tax benefits.

LLC

What is an S corp?

S Corp is not a legal business entity itself; it’s the name for a tax status used by legal business entities such as LLCs and Corporations.

In an S Corp, the company itself isn’t taxed; rather, each shareholder of the company is taxed on his or her share of the corporation’s profits.

S corp

Can you Change LLC to S Corporation?

An LLC can definitely be converted to an S Corp, but there are certain requirements to meet for that. Here are the following requirements you need to hold:

  1. An LLC does not have more than 100 shareholders (owners).
  2. Shareholders cannot be non-US residents.
  3. Shareholders must be private individuals, not other business entities such as LLCs or Corporations.
  4. Shareholders may only elect to have one type of stock, which means that all members must be treated equally.

How to Change an LLC to S Corp

To change your LLC to S corp, you have to file Form 2553 with the Internal Revenue Service (IRS).

The form must be signed by an officer of your company as well as the shareholders. To make your election productive for the whole tax year, you need to file it before March 15 of the year.

A new limited liability company can file an election to be taxed as a Subchapter S corporation within two months and 15 days after the business starts operations.

If your business corporation has failed to file S Corporation taxes for the last several years, consider hiring a tax attorney to remedy the situation. The attorney can advise you on such issues as when an LLC can become an S Corporation, how to convert an LLC, and how to prepare and file LLC taxes.

Whether you form a new company or have been in business for some time, it could be worth converting your LLC to an S Corp, regardless of whether you are a single owner or have multiple partners, S Corp can save you hundreds or thousands of dollars.

Learn More: How to File the Form 1120

Frequently Asked Questions About Changing an LLC to S Corporation

Here are the some frequently asked questions about changing an LLC to S Corporation:

What is an S corp?

S Corp is not a legal business entity itself; it’s the name for a tax status used by legal business entities such as LLCs and Corporations.

In an S Corp, the company itself isn’t taxed; rather, each shareholder of the company is taxed on his or her share of the corporation’s profits.

What are the benefits of an S corp?

S Corps can save money on taxes by taking advantage of certain tax deductions and credits. 

An S Corp’s owners are also eligible for two valuable benefits not available to LLCs and partnerships: the deduction for health insurance premiums, and the opportunity to recharacterize income as capital gains and avoid self-employment tax.

What is the right time to change your LLC to S Corp?

There is no set time for changing your LLC to S Corp but according to our attorneys: If you are generating less than $40,000 a year in self-employment income, converting your LLC to S Corp might not make financial sense. 

However, if you’re generating more than $40,000 a year in net self-employment income and would benefit from the added flexibility of S-Corp status, the conversion may be worth it.

What are the requirements for changing LLC to S corp?

You can only change your LLC to S corp taxation if your company meets IRS requirements for S corp. To make this change, you must meet the following requirements:

  1. An LLC does not have more than 100 shareholders (owners).
  2. Shareholders cannot be non-US residents.
  3. Shareholders must be private individuals, not other business entities such as LLCs or Corporations.
  4. Shareholders may only elect to have one type of stock, which means that all members must be treated equally.

How to form an S corp?

Form 2553 needs to be filed with the Internal Revenue Service (IRS) in order to form an S corporation. Read this guide to How to form an S corporation for more details.