How to Change From an LLC to a Sub S Corp

By Joseph Nicholson

Whereas an LLC, or limited liability company, is a business entity formed under state law, a subchapter S corp is a tax code designation recognized by the IRS. It is possible to change your LLC’s tax treatment to that of an S corp without converting your business to a corporation for other purposes. Alternatively, you could incorporate a new business and transfer the LLC’s assets.

S Corp for Tax Purposes Only

Step 1

File Form 8832 with the IRS to have the company taxed as a corporation. By default, the IRS treats single-member LLCs as sole proprietorships and multiple-member LLCs as partnerships. The members of an LLC can unanimously elect to be taxed as a corporation by filing this form. In some situations, this designation can be applied retroactively to previous tax years.

Step 2

Make changes necessary to meet S corp qualifications. The IRS defines corporations eligible for S corp treatment as domestic companies with no nonresident alien members, having fewer than 100 total members/owners and only one type of stock -- ownership units. Additionally, other business entities except for tax exempt entities cannot be owners of the company and certain types of financial institutions cannot be S corps. IRS Form 2553 details the specifics for qualifying as an S corp.

Ready to start your LLC? Start an LLC Online Now

Step 3

File Form 2553 with the IRS to elect for S corp treatment. If you file the form with your individual tax return, the election can be effective for the tax year for which you’re filing the return. Otherwise, the election will not be effective until the following tax year unless the form is filed within 2 months and 15 days from the start of the company’s tax year.

Conversion or Merger

Step 1

Submit a business entity conversion form to the same state agency that processes business entities, if available. Where available, this single form dissolves the LLC, incorporates a new business and transfers the assets to the new corporation -- an "automatic" conversion.

Step 2

Effectuate a merger. Where a single conversion form is not available, incorporating a new company and merging the LLC into it achieve the same basic effect. But how the assets or interests of the LLC reach the new company will affect the tax basis of the shareholders and have other tax implications..

Step 3

Submit Form 2253 to elect for S corp taxation. Once you've incorporated your new business, which must meet the S corp qualifications, you can elect to be taxed as an S corp by filing the appropriate form with the IRS.

Ready to start your LLC? Start an LLC Online Now
How to Change an LLC Filing as an S Corp to a Sole Proprietor
 

References

Resources

Related articles

How to Become an LLC Business

The choice of business structure is one of the first and most important business decisions a new owner can make, but the decision is not set in stone. If you are running an existing business as a sole proprietor, partnership or corporation, you may choose to convert the business into a limited liability company. An LLC is a hybrid business structure, providing the limited liability features of a corporation while maintaining the ease and flexible management style of a sole proprietorship or partnership.

Can I Convert My LLC to an S-Corp When Filing My Tax Return?

The IRS applies default rules to determine how an LLC will be taxed. In general, a single-member LLC is taxed as a sole proprietorship, but a multi-member LLC is taxed as a partnership. Either type, however, can choose to be taxed as a corporation by filing the appropriate forms.

How to Change the Name of an LLC With the IRS

A limited liability company, or LLC, is a form of business association that combines the pass-through taxation and flexibility of a partnership with the limited liability of a corporation. The Internal Revenue Service does not recognize LLCs for the purposes of federal taxation, instead classifying them as a corporation, sole proprietorship or partnership. If you have changed the name of your LLC, reporting your name change to the Internal Revenue Service generally only requires indicating this on the company’s yearly tax return.

LLCs, Corporations, Patents, Attorney Help

Related articles

Can I Change My LLC to an S-Corporation?

An LLC is an entity created under state law for federal tax purposes, and can be treated as a sole proprietorship, a ...

How to Transition an LLC to a Corporation

Electing to convert a business from an LLC to a corporation is subject to the laws of the state where the limited ...

What Forms Do I Need to File for an S Corp?

An incorporated business is automatically designated by the Internal Revenue Service as a C corporation for income tax ...

How to File an Extension for an S Corp

An S corp, sometimes called an S corporation or a pass-through entity, is a business entity, such as a corporation or ...

Browse by category
Ready to Begin? GET STARTED