LLCs can be taxed as S-Corps. It can save you a LOT on Taxes!

Should you register an LLC, an S corporation, or a C corporation? This is a common question that my clients ask me, and the answer is twofold. First, an S corporation and a C corporation is just a tax election. Even though it has the word corporation in the name, it does not mean that it is actually a corporation entity. That means an LLC can be taxed as an S corporation or a C corporation. So with that being said, which tax election is best for your LLC? This really boils down to how profitable your business is and how much money it's making. There's no clear rule on this, but oftentimes accountants will say if your business is making $70,000 or $80,000 per year, then it is advisable to have the LLC taxed as an S corporation. The purpose of having an LLC taxed as an S corporation is so that you can save some money on self-employment tax. When you have your LLC taxed as an S corporation, you issue yourself a salary and a distribution. The salary has to be a reasonable salary, and that is what is subject to the self-employment tax. Anything that the business makes in excess of the reasonable salary is issued to yourself as a distribution and will not be subject to the self-employment tax. So overall, electing to have the LLC taxed as an S corporation is a tax-saving strategy if your business is making decent money. But if your business is new and just getting started and you don't anticipate that it's going to make over $70,000 or $80,000 in the first year, then you can just keep it as a sole proprietorship, which is a disregarded entity. You can always elect to have the LLC taxed as an S corporation the following tax year.