If I do incorporate as an "S" corp, would I need to get a new EIN # or could I use my current number assoiated with my LLC?
You cannot use the same EIN for the corporation, as the LLC. It is a new entity and would need its own number.
As for the taxes, both S Corporations and LLCs are "pass through" entities. There is no entity level income tax for either S Corps or LLCs. All income passes through to the shareholders or members, who are taxed at whatever their marginal tax rate is.
For more information, see here: http://smallbusiness.chron.com/s-corp-vs-llc-tax-benefits-3779.html
There are people who suggest that you can take advantage of S corps by not claiming all of the income as wages, thereby avoiding social security taxes. In other words, you can, after taking a "reasonable wage" claim the remaining income as ordinary income. Members of LLCs report all income as self-employment income and pay the resulting taxes. The IRS is aware of this "loophole" and is scrutinizing s corporations much more closely, so this is unlikely to be a significant difference.
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You can structure an S Corp. with your personal income tax return so that it produces a lower tax under certain circumstances. This is because net income passed through from an S Corp. is not subject to self-employment tax, and all net income passed through from an LLC is subject to SE tax.
In order to secure this tax benefit (and survive and audit of the S Corp), you must pay yourself a reasonable salary. This requires a yearly calculation to determine the the resonableness of your salary in relation to the net income of the S. Corp. You will need to consult with a tax attorney or tax accountant who understands this process, and have your personal tax situatioin evaluated to determine if the S. Corp. has a tax benefit for you.
Please understand that his is not a simple tax trick. If you fail to properly pay yourself a reasonable salary, you could be audited and held liable for unpaid payroll taxes on the nete income from the S Corp.
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Licensed before the United States Tax Court
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Estate Planning Attorney
Both S corps and LLCs are pass through entities so I do not see a reason to change from an LLC. I agree that IRS does carefully montiors S corps more because of potential loopholes. I would contact a tax attorney to see if your business would benefit from a change.
All answers provided by Attorney Tara Moody-Nichol are made for general information purposes ONLY and are NOT intended to create an attorney-client relationship between Ms. Moody-Nichol and any readers or subscribers to avvo.com.
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