How to Convert an LLC to S-Corp
The reasons for converting an LLC to an S-corporation will vary with each business that seeks to change their legal and taxable status. Some businesses do it as a step toward becoming a C-corporation and many others do it for fundraising purposes since S-corporations can have up to 100 shareholders (as of June 2010). The process of making the switch is fairly simple with little required paperwork. The most important thing to do before initiating the conversion process is to be clear on the reasons why the change will be profitable to you and your business partners.
Other People Are Reading
Instructions
-
-
1
Consult with a small business attorney or tax accountant to help you determine if converting your LLC into an S-corporation is the best move. The profits your LLC has made in the two years prior will be a major determining factor since you will be taxed for those profits in conversions. Once you know for sure that it is the smartest move for you to take, your attorney can assist you with the necessary state and federal paperwork.
-
2
File your request for the change and the reasons why you desire the transfer with the Secretary of State's office in the state where you formed your LLC. Required documentation or sample request letters can be found on the Secretary of State's website.
-
-
3
Submit IRS form 2553, the Election of a Small Business Corporation form, to the IRS to change your entity's tax status. In most cases, you will also need to get a new Employer Identification Number (EIN) for your newly-formed S-corporation. You can apply for a new EIN on the IRS website, or you can print and submit form SS-4 to the IRS by mail.
-
1
Tips & Warnings
In some situations, it may be recommended that you sell your LLC to your new S-corporation instead of taking the conversion route. This will be determined by the taxes that may be assessed by the IRS and your state. Your small business attorney can advise you of the pros and cons of this action.
Rules for converting your LLC will vary from state to state. Also, even though you can quickly get a new EIN on the IRS website, it will take about two weeks for your new number to become a permanent part of their system.
References
Resources
- Photo Credit paperwork image by Pix by Marti from Fotolia.com
