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Level 5

LLC taxed as a corporation - what happens & how?

I may file Form 8832 to reclassify my LLC as an "association taxable as a corporation", or form 2553 to elect status as an S Corp.

 

Staffing agencies frequently offer work called "W2 Hourly" and "Corp-to-Corp" (C2C). One has specifically stated "no 1099" and will accept an "LLC, *excluding single-member LLCs taxed as disregarded entities*". As a freelancer, I'd like to support as many types of compensation as possible.

 

Form 8832 or 2553?
What effect would this change bring?

What's the broadest range of income types I could support? Able to accept 1099 work in the future?

Would tax year 2019 be part "disregarded entity", part "taxable as corp"?

 

Current setup:

Single-member LLC taxed as "disregarded entity". Founded 2014 in Texas.

Solo401k - five years of max contributions.

All LLC income to date has been reported on 1099.

US Citizen. Serving US clients thus far.

 

2 Replies
Level 20

LLC taxed as a corporation - what happens & how?

Mind if I ask a few questions of my own first?

Why are you considering filing the entity reclassification to be classified as an S-Corp? I assume you already know that a corporation is taxed at a higher rate than a disregarded entity.

What does your business do? Provide services? Sell product? Both? Maybe it owns and manages real estate of some type?

" As a freelancer, I'd like to support as many types of compensation as possible."

Exactly what do you mean by "support" as many types of compensation as possible? Does your business have employees? You state "as a freelancer" so I doubt you have any employees, or even any subcontractors you pay for that matter.  So I'm really not clear on this at all.

Overall, I get the impression that some tax professional (like a CPA) is trying to talk you into doing something that may not benefit you, but will put more money in their pocket.  When one elects to have a disregarded entity treated "like an S-Corp", that's for tax purposes *ONLY* and absolutely nothing else. It will afford you absolutely no protection what-so-ever of your personal assets, should a client have reason to sue you. Remember, the 8332 or 2553 is for tax purposes *ONLY* and nothing else.

Level 5

LLC taxed as a corporation - what happens & how?

Thanks for your interest. I've added some answers, Carl.

 

Why are you considering filing the entity reclassification to be classified as an S-Corp? I assume you already know that a corporation is taxed at a higher rate than a disregarded entity.

I have a "bird in hand" opportunity from a staffing agency. Their Independent Contractor agreement excludes LLCs, sole proprietors, or "any disregarded entity". This seems to be a trend in the staffing industry.

 

What does your business do? 

Write software and design platforms and user experiences.

 

" As a freelancer, I'd like to support as many types of compensation as possible."

Exactly what do you mean by "support" as many types of compensation as possible?

"support" = "accept". When I have an opportunity or I'm marketing my services, I don't want barriers to landing a contract or accepting income.

 

Does your business have employees?

No. Single member LLC

 

Overall, I get the impression that some tax professional (like a CPA) is trying to talk you into doing something that may not benefit you, but will put more money in their pocket. 

Exactly right, except it's "some staffing professional" or rather a talent agency's entrenched policy. 

 

When one elects to have a disregarded entity treated "like an S-Corp", that's for tax purposes *ONLY* and absolutely nothing else. It will afford you absolutely no protection what-so-ever of your personal assets, should a client have reason to sue you. Remember, the 8332 or 2553 is for tax purposes *ONLY* and nothing else.

 

I agree. protection of my personal assets comes from being a "limited liability company" and carrying large and varied insurance policies. The latter (a COI - Certificate of Insurance) was required by a former client, and is a common requirement for software contract work.