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View Full Version : LLC Taxed as a Corporation vs. Sole Proprietor/Partnership



hw15
04-06-2006, 01:17 PM
Has anyone heard of the growing trend for LLC's who choose to be treated as a corporation for tax purposes? I'm considering doing this.

I have read that by filing form 8832, a LLC can choose to be taxed like a corporation instead of the automatic sole proprietor/partnership.

The benefit would be that any profits that are left in the company, and not taken out by the owner, will be taxed at the lower 15% corporate rate, instead of 27% on the owner's personal tax filing. This could be advantageous for business who are just starting out and plan on leaving the majority of profits in the company to help it grow.

The other benefit is that you get most of the advantages of corporate taxation without jumping through hoops to be a real corporation, such as issuing stocks, having a board of directors and documenting meeting minutes.

The disadvantage is that if you want to take out any of the company's profits for yourself, as the owner, you would have to be paid like an employee and go through the whole w-4 and 941 forms. Another disadvantage is some might say that filing corporate tax returns may be more complex.

An article about this subject can be found at the bottom of the page of this link:

http://www.nolo.com/article.cfm/objectID/3A3BFF8B-DB8D-4CF1-8C45EAB209521299/111/182/245/ART/

Does anyone have any advice on this issue? Have any of you actually done it this way in your own business?

Thanks in advance.

AseronLaw
04-26-2006, 06:56 PM
It is true that an LLC can choose to be taxed as a corporation (either S or C) for federal income tax purposes. Whether or not it's the best decision for you entails an extensive conversation about the financial status of your business.

If you're the only member of the LLC, you should check your state tax laws to see if you can be taxed as a corporation for state income tax purposes.