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
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is firstname.lastname@example.org.
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.
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