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How can I file as an S-Corp if I am an LLC?

I am a sole proprietor with an LLC am I doing my taxes correctly, doing them as a sole proprietor even though my company is an LLC?  I am the only owner and employee of my construction company.
2 Replies

How can I file as an S-Corp if I am an LLC?

A single-member LLC typically is a "disregarded entity" for income tax purposes and the member files all business activity of the LLC on Schedule C of their own income tax return. 

LLCs can file Form 8832 to elect their business entity classification, a Subchapter-S Corp in your case.



If you elect Sub-S status then you need to prepare a Form 1120S income tax return for the LLC.  As part of the preparation of the Form 1120S a Schedule K-1 will be prepared "passing through" the business activity to you, and you enter the Schedule K-1 in your own income tax return.  The Form 1120S can be prepared by using the TurboTax Business (not "Home & Business") product and this program is only available as an installed program on your PC.

Many sole proprietors are attracted to the notion of electing Sub-S status as the business activities "passed through" to the owner are free from Self-employment taxes.  However, the IRS requires that the business pay its owner a "proper" salary, reported on a W-2 - and this income is subject to FICA and other payroll taxes.  In the case of a single-owner, no-employee situation the IRS's default position is that pretty much ALL the income of the LLC is attributable to the owner as "salary", largely negating the tax advantage you seek.  

If you didn't pay yourself a wage reported via a W-2 in 2016 then you're pretty much locked into Schedule C reporting for your 2016 income tax return.  You can elect Sub-S status somewhere down the road, when it might make more sense.

Tom Young

Level 15

How can I file as an S-Corp if I am an LLC?

If there are no employees in the disregarded entity now (as an LLC) and no W-2's were issued for 2016, then it makes no sense to file to be treated as an S-Corp. As a single owner, the owner can not issue themselves a W-2, 1099-MISC or any other type of tax reporting document. So you're reporting this on SCH C for your 2016 taxes as it stands now, based on the information provided.
Keep in mind also, that with no employees, converting to an S-Corp or electing the option to be "treated like an S-Corp" will have no benefit for you. But it will cost you more to file at tax time, since you need TurboTax Business to file the business return, and must complete that filing before you can even start your personal tax return which requires you purchase another version of TurboTax to do that.
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