Converting a Single Member LLC to an S corp

Converting a single member LLC to an S corp may be a good move for many small business operators.

Many people mistakenly set up a single member LLC when they should be using an S corporation.  They often do this because it’s presumably easier to create and run an LLC over an corporation.  While this may be true, the extra paperwork is worth it for the tax benefits of using an S corporation.

The main reason a small business entrepreneur would use an S corporation over a single member LLC is the tax reporting.  A single member LLC is “disregarded” for federal income tax purposes, which means the income and expenses of the company are reported on the member’s personal tax return return, schedule C.  Schedule C income is subject to self-employment tax, not to mention a high rate of audit.  An S corporation can shield the business owner from some of the self employment tax by taking some income as a salary, and the balance on a form K-1, which is not subject to this this tax.

Converting a single member LLC to an S corp can be done in two ways.  The first is to dissolve the LLC and transfer all assets back to the individual member/owner, then form a new S corporation and contribute the assets from the individual to the new entity.  This involves filing a new entity and the expenses involved at the state level.

Another way is to simply elect the entity be treated for federal tax purposes as an S corporation, while the entity remains an LLC under state law.  This involves making a tax election with the IRS, preparing a resolutions, and amending the LLC operating agreement to conform with the new tax election.  Some states do allow a conversion at the state level from LLC to corporation, but this may not be necessary.  New York state also requires a state filing to make the election effective under state tax rules.

Our firm can do this all for you if you filed or live in Colorado, New York or Florida for a flat fee of $300.

To get started, call 303-398-7032 or click here to send us a message.  We will need copies of the original filing documents and operating agreement (if you have one) to get started.