3.
Re: Convert an LLC to S Corp-is this a good idea? Feb 23, 2009 8:02 AM
in response to:
Bborsa
Assuming you don't take a salary when you have losses, the main difference is when you make money.
All profits of an LLC (Sole Prop or Partnership) are subject to self employment tax, 15.3% of the first $106,800 and 2.9% of anything over that.
An S Corp is required to pay reasonable compensation to its shareholder/officer/employees. That reasonable compensation is typically W-2 FICA taxable wages in the same rates and amounts as SE income above. However, health benefits count toward reasonable comp, but are not FICA taxable.
Health and retirement contributions are not FICA taxed on S Corp principals, but they are SE taxed on Sole Props and Partners.
My vote is usually to stay an LLC.
- There are virually no ownership restrictions; number, entity, status.
- You can issue converible debt if you have a potential investor.
- Partners can agree on how everything will be split; profits, capital, distributions etc. S Corp shareholder MUST do everything according to % ownership. You can still achieve virtually identical results. You just have to jump through more hoops.
- S Corp distributions don't count for retirement contribution calculations currently. Depending on the size/profitablility of the company, this can be significant.
- Having a strong wage/SE Income history can allow you to set up a very beneficial retirement plan if/when you sell the business. (way to detailed to get into here)
I don't know the specifics of your situation. This is not advice. It is general information.
Feel free to contact me for any more specifics.
