promotion image of download ymail app

I am forming a computer business, should I choose an L.L.C. or an S Corp for just myself?

4 Answers

  • 1 decade ago
    Favorite Answer

    You must be an LLC before you can be an S corp

    See below:

    Qualification for S corporation status

    In order to make an election to be treated as an S corporation, the following requirements must be met:

    Must be an eligible entity (a domestic corporation, or a limited liability company).

    Must have only one class of stock.

    Must not have more than 100 shareholders.[1][2]

    Spouses are automatically treated as a single shareholder. Families, defined as individuals descended from a common ancestor, plus spouses and former spouses of either the common ancestor or anyone lineally descended from that person, are considered a single shareholder as long as any family member elects such treatment.[2]

    Shareholders must be U.S. citizens or residents, and must be physical entities (a person), so corporate shareholders and partnerships are to be excluded. However, certain tax-exempt corporations, notably 501(c)(3) corporations, are permitted to be shareholders.[3]

    Profits and losses must be allocated to shareholders proportionately to each one's interest in the business.

    If a corporation meets the foregoing requirements and wishes to be taxed under Subchapter S, its shareholders may file Form 2553: "Election by a Small Business Corporation" [4][5] with the Internal Revenue Service (IRS). The Form 2553 must be signed by all of the corporation's shareholders. If a shareholder resides in a community property state, the shareholder's spouse generally must also sign the 2553.

    The S corporation election must typically be made by the fifteenth day of the third month of the tax year for which the election is intended to be effective, or at any time during the year immediately preceding the tax year. Congress has directed the IRS to show leniency with regard to late S elections. Accordingly, often, the IRS will accept a late S election.

    Some states such as New York and New Jersey require a separate state-level S election in order for the corporation to be treated, for state tax purposes, as an S corporation.

    If a corporation that has elected to be treated as an S corporation ceases to meet the requirements (for example, if as a result of stock transfers, the number of shareholders exceeds 100 or an ineligible shareholder such as a nonresident alien acquires a share), the corporation will lose its S corporation status and revert to being a regular C corporation.

    • Commenter avatarLogin to reply the answers
  • Anonymous
    1 decade ago

    You can elect to be either an LLC or an "S" Corp. One need not precede the other. You should talk to your accountant or attorney to determine the best choice. As the other poster pointed out, if there are any non-citizens among the shareholders, you cannot have an "S" Corp, but must have a "C" Corp status.

    • Commenter avatarLogin to reply the answers
  • 1 decade ago

    You may want to start off as a sole proprietorship since it's much less complicated and faster to establish. ... at least until to start creating steady and increasing sales volume. You'll need to obtain your sales tax license, get signed up with distributors, choose your niche market and start building your website. You can do it!


    Jorge Fernandez

    Start Your Own Computer Reseller Business Online

    • Commenter avatarLogin to reply the answers
  • romans
    Lv 4
    4 years ago

    this is a query your accountant and criminal expert could clarify to you. in case you style an LLC, you default to a partnership and report a 1065. in case you do not something you default to a partnership. An S-business enterprise demands an 1120S, the return is due before, you're able to decide of you're able to pay your self a salary on a W-2. "we are able to have actual sources" strikes me which you intend to have investments as adversarial to a actual business enterprise that sells products?

    • Commenter avatarLogin to reply the answers
Still have questions? Get your answers by asking now.