So probably a dumb question, but if your goal is to file taxes under an S-Corp;

Do you create and LLC and operate your business under that LLC but then file taxes as an S-Corp?

Or do you create and S-Corp and operate your business as the S-Corp, and ultimately file taxes as such?

LLC/S Corp

You can do it either way. I personally have a corporation (Inc.) that is taxed as an S corporation.

I believe you could also have an LLC and elect to have it taxed as an S corporation.

You get to the same place and same tax benefits at the end of the day.

I was told by an attorney that MAYBE it would be more defensible if you have an S corp vs an LLC. I'm not sure I buy that honestly. But I went and did mine as a corporation to hopefully make it more defendable if needed.

You'll probably want to familiarize yourself with the requirements of administering a corporation versus an LLC. Generally, the requirements are stricter for corporate governance (i.e., board of directors, record keeping, etc.). I will say that the majority of small businesses I deal with are structured as an LLC taxed as an S-Corp to avoid those requirements and still get the tax benefits, but your situation may call for something different.

Billy Baroo said:

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You'll probably want to familiarize yourself with the requirements of administering a corporation versus an LLC. Generally, the requirements are stricter for corporate governance (i.e., board of directors, record keeping, etc.). I will say that the majority of small businesses I deal with are structured as an LLC taxed as an S-Corp to avoid those requirements and still get the tax benefits, but your situation may call for something different.

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This makes sense and sounds like I am good to go to just maintain my LLC and file taxes as S-Corp

You'll actually need to file a Form 2553 in order to make that S-Corp election for the LLC prior to filing your return (you can also attach that form to a timely filed return as well, but I'd fax it in separately).

The deadline to make the election is two and a half months after the beginning of the tax year in which you want it to be effective, so March 15th for most calendar year taxpayers. If you've missed the cut-off, in most circumstances they will accept a late election, but you have to indicate that on the form (the instructions to do so are within the instructions for Form 2553).

Yes, my CPA did alert me of that form and helping me with that. The goal will be to start 1/1/2025 and have all income from 2025 on to be filed in the S-Corp.

If you form an LLC and then elect S status for tax filing, be sure the LLC paperwork has nothing in it that can bust your S election. One of those things is special allocations. There are more than a few folks that draft LLC paperwork under the premise it will operate and file taxes as a partnership. The template they use might have such partnership language in the documents and that could cause you to lose your S election.

one safe place said:

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If you form an LLC and then elect S status for tax filing, be sure the LLC paperwork has nothing in it that can bust your S election. One of those things is special allocations. There are more than a few folks that draft LLC paperwork under the premise it will operate and file taxes as a partnership. The template they use might have such partnership language in the documents and that could cause you to lose your S election.

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Also, all owners of a S Corp must be a person (not another entity). There are exceptions to that if proper elections are filed with the IRS, but that is the general rule.

It doesn't sound like that is the case with the OP, but just wanted to add for clarity.

Also I am a CPA and I agree with everything Billy Baroo has said on this thread.

gigemhilo said:

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one safe place said:

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If you form an LLC and then elect S status for tax filing, be sure the LLC paperwork has nothing in it that can bust your S election. One of those things is special allocations. There are more than a few folks that draft LLC paperwork under the premise it will operate and file taxes as a partnership. The template they use might have such partnership language in the documents and that could cause you to lose your S election.

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Also, all owners of a S Corp must be a person (not another entity). There are exceptions to that if proper elections are filed with the IRS, but that is the general rule.

It doesn't sound like that is the case with the OP, but just wanted to add for clarity.

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Some entities can be S corporation shareholders. Some trusts, an estate (at least for awhile), and another S corporation (with an important restriction) can. But someone really needs to know what they are doing when the shareholder is not a person. And even then, not all persons qualify.

Though retired now, I have just recently been made aware of a local company that has 35 or so shareholders that has an issue. It had been a C corporation from the time it was formed in 1918 or so. About 15 years ago it made an S election. At some point, one of the shareholders was someone's IRA account based on documents I was given. I do not know if the IRA was a shareholder when the S election was made and that fact was missed by everyone (including the IRS on the 2553) or if a transfer of shares was made after the S election and someone in the entity wasn't aware of the rules and then transferred the shares to the IRA. I notified the entity's CEO and they notified their CPA, but never heard anything back.