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Can a Limited Liability Company (LLC) be taxed as an S Corporation?

One of the truly unique features of an LLC is that it can simulate the tax treatment of another entity type which could provide a more favorable tax treatment. By default the IRS classifies single member LLC’s as disregarded entities and assigns them the same tax treatment that is designated to a sole proprietorship. In cases where the LLC has more than one member the IRS will treat it as a partnership.

The LLC has the privilege of foregoing either one of the two designated tax classifications by electing to be treated as as an S Corporation. The S Corporation can provide the members of an LLC with the ability to compartmentalize ordinary income and earned income. While earned income is subject to self employment taxes currently around 15.2% ordinary income is taxed at the personal income tax rate and is not subject to self employment taxes. In most cases the members would receive a salary for their work that is subject to self employment taxes and then any income received beyond the salary would be considered a non dividend income distribution and treated for tax purposes as ordinary income.

In order receive the tax classification of an S Corporation the LLC must file the IRS Form 2553 within 75 days of the date of formation. Otherwise it can take the election by filing in subsequent years by filing the same IRS Form 2553 by the calendar day of March 15th. If you are interested in receiving this tax treatment please contact us upon placing your order so that we may prepare the necessary IRS Form and deliver it with your filing.

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