> the tax difference between the 2 boils down to how much you're going to make - that is if you make over $X per year you want one solution and if you make under $X you want the other.
I have an LLC, and some time ago I discussed about converting it to S-Corp with my accountant. I forgot the details but the logic was like this:
In LLC, you pay 2.9% of your net income (wage + dividend) for SE Medicare tax, no matter how much you make. In S-Corp, FICA tax, in which 2.9% Medicare is included, is only taxed on the wage portion. Thus if your company makes a lot more than the standard wage, S-Corp saves the 2.9% on the dividend part of your income (Wikipedia has example calculation: http://en.wikipedia.org/wiki/S_corporation ). If your company just makes around or below the standard salary, you don't have this advantage of S-Corp, and it is a matter which one needs more paperwork and accountant fees; for one-man small LLC like mine, these overhead cost is smaller than S-Corp.
(Note: Social Security Tax has a cap, so it doesn't make difference if you set your wage above the cap. You cannot set your wage too low in order to save FICA tax; it must be "reasonable").
Converting LLC to C/S-Corp looked a lot more work than converting S-Corp to C-Corp. My accountant suggested me that the easiest way was to dissolve my LLC first then establish a new S-Corp. Since my LLC was for small business and I didn't have any prospect of external funding, I decided to keep LLC.
Comments
> the tax difference between the 2 boils down to how much you're going to make - that is if you make over $X per year you want one solution and if you make under $X you want the other.
I have an LLC, and some time ago I discussed about converting it to S-Corp with my accountant. I forgot the details but the logic was like this:
In LLC, you pay 2.9% of your net income (wage + dividend) for SE Medicare tax, no matter how much you make. In S-Corp, FICA tax, in which 2.9% Medicare is included, is only taxed on the wage portion. Thus if your company makes a lot more than the standard wage, S-Corp saves the 2.9% on the dividend part of your income (Wikipedia has example calculation: http://en.wikipedia.org/wiki/S_corporation ). If your company just makes around or below the standard salary, you don't have this advantage of S-Corp, and it is a matter which one needs more paperwork and accountant fees; for one-man small LLC like mine, these overhead cost is smaller than S-Corp.
(Note: Social Security Tax has a cap, so it doesn't make difference if you set your wage above the cap. You cannot set your wage too low in order to save FICA tax; it must be "reasonable").
Converting LLC to C/S-Corp looked a lot more work than converting S-Corp to C-Corp. My accountant suggested me that the easiest way was to dissolve my LLC first then establish a new S-Corp. Since my LLC was for small business and I didn't have any prospect of external funding, I decided to keep LLC.