Hello everyone, I have a question, which the accountant I worked before was not very clear when answering and therefore brought me doubts about his work. Me and a partner have a small consultancy business that was opened last year in Texas as a LLC. We decided to take almost a full year to "organize" ourselves from inside, structuring etc. We just signed a project and our accountant told us to change from LLC to Small Corp, however he did not give us numbers, only verbal explanation. Even though it makes sense what he said, I would like to see the numbers before we pay for a service to change the type of company. I asked him about two scenarios, for LLC and Small Corp, what would be the difference in the taxes for both company and personal taxes? His answer did not have numbers and was a very short answer only saying that LLC pays 25% to the IRS and the S Corp pays 12% to the IRS, but I did not understand it very well , also because of the dividends that I informed him. How are they taxes, how much are they taxed? What would be the taxes for the company and the individuals on both scenarios? We are not providing real numbers, but the question was based on the following numbers: A profit of US$ 156,000.00 and also a total of US$ 253,440.00 in dividends to be divided in two people ($126,720.00 each). What would be the real monetary gain? Is there a real advtange? Thanks in advance and sorry for the long question.
Value benefit regarding TAXES to change from LLC to S Corp (for both company and individual)
Neither the LLC nor the S-Corp is subject to paying taxes. They are legal entities and act from a tax point of view as "pass-thru" entities.
I cannot see any reason that would justify a change from an LLC to an S-Corp from an accounting or tax point of view
There are some legal advantages to change from an S-Corp to an LLC since the LLC is more flexible when it comes to the financial protection of the members of the LLC.
All profits/losses generated by LLC and S-Corps are passed on to owners in a proportion to their investments in the company by Form K1. The owners will report the distributed profits reported on Form K 1 from their LLCs or S-Corps in their annual IRS Form 1040.
The only change such a switch would cause is additional accounting/legal fees to liquidate the S-Corp and to open the LLC and possibly trigger an audit in the process.