| Why would an LLC company wish to be taxed as a C corporation?
There are a number of reason that an LLC owner would wished to be taxed as an C or as S Corporation. However, there are 5 primary reasons that the LLC owner should consider as being very important and these are as follows;
1.Self-employment Savings.
In the current tax environment, there is some scope for self employment tax savings especially in the S Corporation where is an opportunity of having some pass thru income that can potentially escape self employment taxes, assuming the owners take a reasonable salary.
2.Fringe benefit plans generally are deductible.
In the case of the C Corporation, these fringe benefits not be subject to inclusion in salary for the 2% Shareholders as required for an S Corporation or be considered as a Guaranteed Salary for an LLC Entity. Thus, the extent of the potential fringe benefits would be an important factor in deciding to choose the tax treatment as a C Corporation.
3.Dividends are taxed at a lower tax rate.
The shareholders can take advantage of the lower dividend tax rate on any distributions made from the C Company. These would be taxed at much lower tax rate than that of any pass thru income reported on the LLC’s or an S Corporations K-1, that would be subject to the individual shareholders marginal tax rate.
4.Ideal for contemplation of public offering.
This is the ideal entity if the entity is planning for an initial public offering especially true if the entity is taxed as a C Corporation. The losses and profits would not flow through the K-1 of both the S Corporation or the LLC’s individual shareholders. This is useful if the company wishes to retain profits within the company without causing the profits to flow through the individual shareholders.
5.Possibility of enjoying a lower corporate tax rate.
This is especially true when the companies profit is less than $50,000, the tax rate on these profits would be at 15% that would far less than the individual shareholders marginal tax rate, which could be greater than 15% if the company would be an S Corporation or an LLC.
Thus, the owner of the LLC needs to consider all the facts and circumstances prior to choosing the desired tax treatment for the LLC entity. Clearly, there are advantages and disadvantages with each tax choice for the LLC entity and the taxpayer should consult their tax advisor to determine which would be the best choice of tax treatment for their LLC.
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