How can an LLC elect S Corp tax status?
An LLC choosing S Corp election for tax purposes, can provide enormous employment tax savings, and reduce the risk of the business getting audited by the IRS.
Amending the operating agreement, is practically a prerequisite.Since, LLCs are designed to have flexible management with few corporate formalities, while S Corps impose strict ownership requirements, along with many formalities; a carefully drafted amendment of the LLC's operating agreement, would need to be made, in order to bridge the gap, of these two regulatory frameworks.
A single member LLC can transition to S Corp tax election.Single member LLCs are a disregarded entity, for federal tax purposes. They are not considered partnerships, like multi member LLCs, in terms of federal taxation. This is important, because partnerships do NOT qualify for S Corp tax treatment. This means single member LLCs, can elect corporate tax treatment, and then make the leap to S Corp tax election.
Statutory conversion.Depending on the jurisdiction, it may be possible for an LLC to convert into a Corporation. Doing this conversion, opens the possibility for multi member LLCs to seek S Corp tax election.
Statutory merger.If a statutory merger is not available in your jurisdiction, or just too costly for state and local tax purposes, then there may be another alternative. This involves creating a separate entity, a Corporation, and then have the LLC merge into the Corporation. Similar to a conversion, this may make multi member LLCs, eligible for S Corp tax treatment. An additional option, which is too complex to discuss on this part, but is worth mentioning, is a non-statutory conversion.