Why You May Want Your LLC Taxed as an S Corp

There are so many decisions that small businesses owners need to make. In addition to running your day-to-day business, you also need to worry about making sound decisions when it comes to business operations. One consideration that should not be overlooked is your taxing structure. Many small business owners elect an “S Corp” designation because of its distinct tax advantages. But what is the S Corp designation? When can this designation be pursued/elected? What benefits might the designation bring for your company?

This article will begin the conversation on S Corp designations – for specific, legal advice on business entity formation that is tailored to your own circumstances, contact an experienced small business and business entity formation attorney at the Forsythe Law Firm. Our firm can help you know what steps to take as you move forward in your business, and offer experienced guidance every step of the way.

What’s the Difference Between an S Corp and LLC?

If you are confused on “what’s the difference between an S Corp and an LLC?” Clarity might come from understanding that with an LLC and an S Corp you are talking about two different buckets.

An LLC is a business legal structure. LLCs form a limited liability company. An LLC is a legal business entity formed under state law and is a separate entity from its owners. LLC owners or “members,” can be just one member acting in the business, or might consist of many members. LLCs are a popular choice for sole business owners or small businesses because there is more management flexibility. There are also very often fewer reporting and recordkeeping obligations for LLCs than for other corporations.

Unlike an LLC, an S Corp is not a legal business entity. This means that it is not an either/or choice of picking an LLC OR an S Corp designation. Instead, an S Corp is a legal tax classification/designation that a business entity (like an LLC) may choose for itself for tax purposes with the internal Revenue Service.

S Corp Designation

There IS no “LLC” tax classification. For tax purposes, businesses are classified as either sole proprietorships, C corporations, partnerships, or S corporations. LLCs with one owner or one “member” will generally be taxed as a sole proprietorship. This makes sense as there is a sole owner/member. LLCs with more than one member are generally taxed as a partnership. However, an LLC may elect to be taxed as a C corporation or S corporation instead.

Exceptions to S Corp Classification

Not every business can qualify for taxation as an S Corp. Certain businesses, including those that are foreign corporations, or those businesses that are actually owned by another business, cannot qualify for the S Corp tax classification. An experienced business formation attorney can help you understand what your options and potential business strategies might be.

Contact the Forsythe Law Firm

Small businesses can often make avoidable mistakes when building and organizing their business structure. For formal legal advice and guidance in your own small business legal dealings, contact an experienced Atlanta business entity formation attorney at the Forsythe Law Firm.

Sources:

bizreport.com/llc-vs-s-corp

thetaxadviser.com/issues/2025/may/how-s-elections-go-wrong/