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    6 Replies Latest reply on Mar 14, 2012 9:43 AM by thewayitis

    Convert an LLC to S Corp-is this a good idea?

    Bborsa Newbie
      I have just started a small business, and have yet to report or have any profits (i started it last week), I am filed as an LLC and am now wondering if i should've filed as an S-Corp. My business is in Indiana if that helps. Any advise or help would be much appreciated.

        • Re: Convert an LLC to S Corp-is this a good idea?
          tradedude Adventurer
          Talk to your acounts and find out about the legal end plenty of information on the internet but an attorney in your state will be best. Remember any type of corp. has good and bad, each business has different reasons. If your have to change later for any reason I understand it is a lot of hassel. Most of the time it is to protect your personal stuff just make sure it fits your own needs. Hope this helps. Jon
            • Re: Convert an LLC to S Corp-is this a good idea?
              Bborsa Newbie
              Thanks for your quick response, i'm just worried that I'll be taxed heavily if i dont switch to an S-Corp
                • Re: Convert an LLC to S Corp-is this a good idea?
                  dublincpa Scout
                  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.