When To Switch From LLC To S Corp

Are you wondering when to switch from LLC to S Corp? Understanding the right time to make this transition can significantly impact your business's tax benefits and overall structure.
In this video, Navi Maraj will discuss when to switch from LLC to S Corp, outlining the key factors of making this change.
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This video was created for informational purposes and it is not to be construed as legal and tax advice specific to your unique situation. Some of the links above are affiliate links which means that if you purchase a product or service with the provided link, I may receive a commission with no additional cost to you.
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[@NaviMarajCPA]

💰 Ready to save THOUSANDS in taxes? Enroll in my course here 👉 navimarajcpa.teachable.com/p/smallbusinesstaxessale

[@samkeino6810]

In electing to be taxed as a Scorp with reduced FICA, what are the implications on my eventual social security payout at retirement?

[@anthonyvazquez8742]

I love how you use actual scenarios with real numbers and walk the viewer through the calculations. Your explanation and emphasis on the key drivers are great. Thank you!

[@NaviMarajCPA]

You’re welcome and thank you for the feedback!

[@Hassanff3651]

Thanks brother for making this valuable content. More power to you.

[@NaviMarajCPA]

You’re welcome!

[@salpremiers]

You nailed it!! I loved this comparison it’s very easy to understand. What happens to owners draws how are they reported? are they counted in the K1? Thank you Navi for the answer.

[@NaviMarajCPA]

Thank you. S Corporation shareholder distributions are reported in a few different places on Form 1120S, one of which is the K-1. They are taxed at ordinary income tax rates and are not subject to social security and Medicare taxes.

[@kleung888]

Great videos Navi! They're informative and easy to follow along. Keep up the great work. I had a question on whether I should choose taxation status to be a single member llc vs S corp. I've maxed out the social security tax limit of 168k (2024) in my W2 job. I've recently set up a LLC set to earn nearly 200k. I understand that I won't need to pay any additional social security taxes, but will continue to need to pay for medicare taxes. I am in the 35% federal tax bracket in my W2 job. Would it make more sense to be a single member llc if I wanted to max out my retirement accounts? Thanks in advance!

[@mohinder4chd]

Great presentation with simplicity

[@NaviMarajCPA]

Thank you. 👍🏼

[@00fariz]

Can we have access to this excel file to run our numbers? Thank you for all your help!

[@VideoKike]

Navy, thanks for another great video. I recently got interested on becoming a SB Owner, and looking for info on this matter I came across some of your videos. They had been a great source of information. So thanks for the incredible help you have become to me. I was wondering where could I get acces to the spreadsheet where you compare the taxes due between the diferent tax clasification you could set for your entity. In advance thank you for the help again and for you great work

[@NaviMarajCPA]

Thank you for the feedback. The spreadsheet is not available because it’s not 100% formula based and there are some hard keyed numbers.

[@relaxedclub9425]

Great. S-Corp owner doesn't pay state income tax [SIT]? It's not in the calculation above. Also, how about workers compensation for s-corp owner?

[@AmbrosianAdventures]

Why wouldn't you also have bookkeeping fees if the company was a sole p. LLC?

[@rhubert2539]

Why has the conclusion changed from your previous video stating that at 40 K profit s corp makes the most sense?

[@whazupmike]

Thanks for the explanation. I just became an LLC and i already hired a bookkeeper, I have three employees - using Gusto, and using an accountant to file sales tax and imcome tax. Since I am already using those services - paying for it, getting a S Corp seems like a way to go. Am i right?

[@svrdlinj4730]

Is payroll only if I have employees?

[@NaviMarajCPA]

When you’re a sole proprietorship or partner in a partnership, payroll is for W-2 employees (not the sole proprietor or partner). When you’re taxed as an S Corp or C Corp, the owners themselves are typically on payroll (in addition to non-owner employees who are on payroll).

[@enamoradoyessenia]

How about the distribution from the s corp. how is that taxed on the personal taxes? At what tax rate?

[@NaviMarajCPA]

The distribution is accounted for in my examples. To answer your question more specifically though, distributions from an S Corp are taxed at ordinary income tax rates.

[@enamoradoyessenia]

@@NaviMarajCPA thank you. I love your videos

[@edcruz2706]

Great video. Last year I hired a tax accountant for the first time and he files as soon as s-corp. What do I have to do to go back to self pro for 2024? Thank you!

[@NaviMarajCPA]

It’s a bit complicated to explain here. If you think your business will be profitable enough within the next couple years, then you may want to stick with the S Corp election. You can revoke the election but if you do so, you can’t elect to be an S Corp again for another 5 years.

[@edcruz2706]

@@NaviMarajCPA The can’t elect to be an S Corp again for another 5 years is an essential consideration. I will likely stick with S-corp but hire a new tax accountant and probably a bookkeeper to take this off my hands more, but it is so hard to find good help these days - thank you!