If you have a newly incorporated LLC or Corporation, you only have until March 15 to elect S-Corporation status for the 2016 tax year, using IRS Form 2553.
This is important because there could be significant tax consequences to you, if you do not elect for S-Corporation status.
As the owner of an LLC interest, not taxed as an S-Corporation, you will report your share of LLC income on your personal tax return as if you were a sole proprietor or a partner of the business. That means you will pay self-employment taxes on your full share of the LLC income for the year.
In contrast, if you set your business entity up to be taxed as an S-Corporation and pay yourself a reasonable, but small salary, you will only pay self-employment tax on your salary and the rest of the business income can be paid to you in the form of distributions that are not subject to self-employment tax.
This one decision can save you thousands or even tens of thousands of dollars on your taxes next year.
This decision is only one of many decisions that significantly impact how much money you keep in your bank account when it comes to your business.
If we can help you with this decision, or any other decisions when it comes to the legal, insurance, financial and tax parts of your business, give us a call.
This article is a service of Bridge Law Law Firm. One of our primary services is to assist business owners in making the right legal and financial decisions so that they save money in the long-run and avoid the unnecessary costs of litigation. We advise our business clients on a whole host of issues, including guiding them through the right choice of business entity, location of a business entity, start-up agreements, intellectual property protection, employment structuring, insurance, financial and tax systems that you need to start your next business and succeed right out of the gate. Many of our business clients are on our membership program, where they save money for monthly legal counsel consultations. Call us today to schedule a time to get started!