Tax Tips for a Sub S Corporate Structure

When you become self employed, you must decide what form of business entity to establish. The basic categories include sole proprietorship, partnership, C corporation, LLC (Limited Liability Company) and S corporation. It’s important to discuss entity selection with both your attorney and your tax professional before deciding what structure is best for your business. Each option offers advantages and disadvantages. Every business situation is unique and requires a full study to make the most beneficial determination.

If you select an LLC business structure, you can elect to be treated for tax purposes as any of the above entities. At the federal level, there is no tax return for an LLC — it’s what you call a check-the-box entity. If, as an LLC, you elect to be treated as a sole proprietorship, you will file a Schedule C with your individual income tax return. If a partnership, you will file a Form 1065 – partnership income tax return. If a C corporation, you will file a Form 1120 corporate income tax return. If you elect sub S corporation, you will file a form 1120S, sub S corporate income tax return. The tax rules regarding whichever entity you select for tax purposes will apply to your LLC.

When you file your incorporation papers, you must remember to complete Form 2553 to elect treatment as a sub S corporation. As a sub S corporation, as the owner/operator you will have to go on payroll and set a reasonable pay rate for yourself and report and pay payroll taxes. Your pay will be deducted as a business expense on the corporate income tax return.

To read more about tax tips for your sub S corporate structure, visit Fox Business.