Before electing to be an S Corp, it’s good to know a few things about the process.
First of all, to be eligible for election; you must already be an entity such as a corporation or LLC and that entity must be current. LLCs in many states lapse if annual reports are not filed.
Then, the election must be filed. It has to be filed by March 15 or it may not be processed the same year. When it is approved, you will receive a letter with a new EIN number. If you already have employees, you may need to amend the payroll reports to reflect the new EIN. You will need to update W9s with your customers. They will no longer need to send you 1099s now that your business structure has changed.
The benefit to being taxed as an S Corp is the reduced tax since your income is now reflected as capital gains and not as active income. But it isn’t for everyone. The reporting is more expensive and a reasonable owner’s salary must be maintained to keep the S Corp in compliance.
It is always good to consult with a finance professional before changing your business structure not only to make sure it is the right choice but to make sure you are taking the necessary steps to prepare for maintaining that business once the election is approved.
Written by:
Laura Fleig
www.fleigfinancialsllc.com
