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Why Most Small Business Owners Should Convert their LLCs and C Corps to S Corporations

Date: 6/1/2018

Our certified public accountant at Heemer, Klein & Company, PLLC has good news for small business owners in Michigan. There’s a very good chance that you could save $3,000 to $10,000 a year in taxes after electing S Corporation status for your LLC or C Corporation (may not apply to businesses generating rental income).  

This tax election known as a “S Corp. election” has several advantages over the C Corporation status or an LLC taxed as either a partnership or sole proprietorship. However, it is easy to lose an S corporation status if you don’t handle the conversion process just right. Therefore, if you decide to make the switch, you should consult with a business accounting expert from Heemer Klein.

Our CPA can help you determine if your company qualifies for an S corporation status, guide you through the process, and help you save as much money as possible.

The Advantages of Converting Your C Corporation or LLC to an S Corporation

Most small businesses start out as LLCs or C corporations. However, business who qualify for S corporation status enjoy the following advantages:

They retain limited liability protection.

This perk does not go away when small businesses elect status for their LLC or C Corp and this limited liability protection still extends to company directors and officers, shareholders, and employees.

They eliminate the burden of double taxation.

Profits generated by C corporations are taxed once as corporate income, then again as dividend income, but this isn’t the case with S corporations. Instead, their profits are taxed one time, and one time only.

They may practice pass-through taxation.

Owners of LLCs or Corporation that elect S Corp status may report their share of company profits and losses on their individual tax returns.

Profits are not subject to FICA and Medicare taxes.

LLCs and Corporate entities that are taxed as S Corporation are taxed on the owner’s personal tax return, but unlike the self-employed with profits or wages, the profits from an entity classified as an S Corp. are not subject to social security taxes (FICA and Medicare). This benefit alone can save thousands. The tax savings on $50,000 of profits are as much as $7,500!

Why a Small Business Owner Needs a Reputable Accountant when Converting to S Corp. Status

It isn’t difficult to qualify for S corp. status. As a small business owner, you must provide proof of U.S. citizenship or verify that you are a permanent resident. You must also have 100 shareholders or less (limited ownership) and consistently meet your tax qualification obligations.

However, as mentioned before, the process required to achieve S corporation status is very detailed and precise, and even small mistakes can disqualify your company. But our CPA at Heemer Klein can make the transition easy and worry-free. In addition, S Corporation tax status requires an annual tax return best handled by a qualified CPA. We can help you navigate the S Corporation rules and determine the right mix of wages and profits for owners that will save taxes immediately. Again, for the best tax preparation for small businesses, trust Heemer Klein.

As a small business owner in Michigan, if you need an “accountant near me” for an S corporation transition or for any other reason, contact Heemer, Klein & Company, PLLC. For small business needs, we are the leading accounting firm Richmond MI, accounting firm Sterling Heights, and accounting firm Warren Michigan. Call our experienced CPA at (586) 727-5145 in Richmond, (586) 751-1040 in Sterling Heights, or (586) 751-6060 in Warren. You can also reach out to us through the contact form on our website.

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