Formed Single Member LLC. What are pros and cons of filing form 8832 to be taxed as a Corporation?


6

I recently formed an LLC for my software side business. The income generated is between 5-10k a year. I have also filed and receivied a Federal EIN.

I think I intend to take money out or "pay myself" at the end of the year (Dec 31). What are the pros and cons are filing form 8832 to be taxed as a Corporation?

LLC Tax

asked Apr 14 '11 at 23:36
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Robby Pond
133 points
  • I bet this is worth more money to you than a bounty. Use actual money to pay an actual expert. – Marcin 8 years ago
  • @Marcin. If you look closely you will see that the bounty was opened by @kekito in support of this question -- not directly by @Robby Pond. Assigning a bounty to a question can be done by the author -- or by any one else that would like to encourage more detail or indepth answers to a specific question. Kudo's to @Kekito for their "investment" in the community! – Joseph Barisonzi 8 years ago
  • @Joseph Barisonzi: I don't care who started the bounty. This is a legal and taxation matter. The only advice is to get proper advice for which one has paid. – Marcin 8 years ago
  • @Marcin -- that would be a great discussion for the "Meta" board -- when is the question appropriate, and when should there only be paid professional advice. Why limit the restriction to legal or taxation issues? Why not programming, or marketing, or finance? I will look forward to seeing your question/discussion over on Meta. – Joseph Barisonzi 8 years ago
  • @Joseph: I don't want to introduce a policy against such questions. I want people to realise that asking such questions on the internet, rather than of a qualified professional is an excellent way to get themselves in a lot of trouble. That generally does not apply to programming or marketing. As to finance, that varies. – Marcin 8 years ago
  • The thing is, so much of what a startup person might want to ask might be a topic to bring up to a proefessional adviser. This is why this should be discussed in Meta, @Marcin, because a disclaimer about certain kinds of advice might be something that a user should be presented with upon signup. – Cyberherbalist 8 years ago
  • +1 sign up disclaimer / hold harmless. – John Bogrand 8 years ago

3 Answers


2

@Robby Pond, in the situation you describe there are really no advantages for your small business to be a "corporation".

A single owner LLC can file as a sole proprietor on Schedule C of your Individual Tax Return.

More than one owner/partner file a Partnership.

You always have a one-time option to convert to a corporation in the future when you are seeking outside investment.

answered May 20 '11 at 00:46
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Joseph Barisonzi
12,141 points
  • Not true - there are advantages. For example if the net income from an entity is above a reasonable wage, an S corp owner can save money on self-employment over an LLC member. http://smallbusiness.chron.com/llc-vs-s-corp-payroll-taxing-3776.html for example. Unless you mean that the treatment advantages are the same - in that case I don't know. I took your statement to mean that LLC vs Corp has no advantages/disadvantages – Tim J 8 years ago
  • Thank you for the additional comment @Tim. I was looking at the situation that is described above. This is @Robby's part time job and side income of $5-10K/year. Yes, there are a host of taxing, child support, or student financial aid implications. With the information that has been provided by the person asking the question -- there will be no advantage of making that conversion in this tax year unless he is making the jump, going full-time and securing external investors. Thanks for watching so close @Tim and raising the bar! – Joseph Barisonzi 8 years ago

1

Taxation as a corporation will make your company subject to double taxation. So you pay income tax on the corporate entity, and then again when you move the money either through payroll or payout in dividends.

For a partnership or sole proprietor entity which is the default your taxation runs right through your income and gets taxed at that rate.

In both cases the expenses can be removed from the taxes though it is easier to track defered expenses in corporate entities then partnership versions (as in expenses that you have accrued but did not have sales to offset to get the tax sheild).

Since you already have income meansing sales above expenses then the simplicity of the tax problem is over stated and the default state will likely be your easiest solution.

http://www.businessknowhow.com/startup/llcfaq.htm

answered May 19 '11 at 05:26
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John Bogrand
2,210 points
  • The neg on the prior answer was stronger then necessary for critism. – John Bogrand 8 years ago
  • I agree. Let's all commit to adding transparency to our downvotes and sharing with the community when we do and why. @Tim does a good job of this-- and we should all follow his lead. – Joseph Barisonzi 8 years ago

1

NO BENEFIT to being taxed as a corporation. Now, the income from the LLC passes straight to you, without being taxed at the LLC level. No reason to change that.

answered May 21 '11 at 21:46
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User6492
1,747 points

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