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CONVERT LLC TO S CORP

A Limited Liability Company is one of the most popular forms of business because of the limited liability and tax benefits that it enjoys. If an LLC is single owner then it will be taxed as a sole proprietorship and if it has multiple owners then it can be taxed as a partnership or even a corporate entity. You can also choose to convert LLC to S Corp, so that it can enjoy various tax benefits like “Pass-through Taxation”. Let’s try to understand why the conversion to S Corp is beneficial for businesses and how it works.

Why Consider Converting LLC to S Corp?

You have registered your business entity as an LLC, why should you switch to an S Corp? Will it be beneficial in any way? One of the governing factors is the self-employment tax. When the income of your Limited Liability Company increases due to higher profits, there will be an increase in the self-employment tax as well. Although, you are paying higher tax, the ability to contribute to any retirement account will not change and hence, when you convert LLC to S Corp Nevada, there will be definite advantages. Let us take a look at some advantages of converting LLC to S Corp.

S-Corp Distribution

If you convert LLC to S Corp then you will be able to classify a part of your income as salary and a part as distribution. You will still be required to pay self-employment tax on the salary part of your income, but the distribution portion will draw only standard income tax. At the end of the day, how you divide your income will determine if you pay a higher or lower self-employment tax.

Savings from Self-employment tax

When you convert LLC to S Corp Nevada, there are several advantages and this is one of the most sought after. When you have a Limited Liability Company, the income will pass through to you or the owner and this income will attract 15.3% self-employment tax. If you or the owner of the LLC resides in a foreign country then you can benefit from the “Foreign Earned Income Exclusion” but it will minimize your income tax and not the self-employment tax. The moment you convert to an S Corporation, you as the owner can classify a part of the profit as salary and then minimize income tax through the “Foreign Earned Income Exclusion” program. At the same time, the rest of the profit will draw Self-employment tax, the amount of which would be much less.

Retirement savings with S Corp

One of the big advantages of conversion of LLC to an S Corporation is that you will be able to contribute a higher amount towards retirement accounts as having an S Corp helps in setting up of the “Solo K” or the individual 401K. Let us check some of the retirement savings options available when you convert LLC to S Corp Nevada.

  • Solo K – This is also known as the “Individual 401k” or i401k. Normally only those people who have an income that is less than $120,000 are allowed to contribute around $5,500 to a 401k/Roth IRA. The salient aspect is that when you convert LLC to S Corp, you can opt for the Solo 401k wherein you will be able to contribute a maximum of $18,000. Apart from the Roth Solo 401k, you can also contribute a maximum of $36,000 to a traditional Solo 401k. It is important to remember that the contribution is dependent on your salary.

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When you should consider converting your LLC to S Corp?

Once you have taken a decision towards converting your LLC to an S Corporation, what is the next step? It is important to identify the right time for this conversion. The primary reason why businesses convert LLC to S Corp in Nevada is to enjoy tax benefits.

The best time to convert your LLC to an S Corporation would be when the self-employment tax seems to be exceedingly high. If you have a net income of $40,000 then it would be right to convert LLC to S Corp. The decision for conversion is dependent on specific circumstances and several factors like:

  • This is definitely one of the important aspects that you need to consider. You can elect for being taxed as an S Corporation only if you convert LLC to S Corp within 2 months and 15 days after the beginning of the tax year.
  • It is important to focus on the type of business you have. It is an important factor as businesses offering services will be able to benefit from the ability to take a qualified business income (QBI) deduction as well as meet the reasonable salary requirement.
  • One of the factors that will help decide when to convert LLC to S Corp Nevada is the net business income. You have to identify if your net business income is below or above the 2019 Social Security wage base, which is $132,900. If it is above the wage base then as an S Corporation, the owner or shareholder will be able to apply for a 20% QBI deduction.
  • If you convert LLC to S Corp and qualify for “Foreign Earned Income Exclusion (FEIE)” then as the owner, you will be able to exclude a maximum of $104,100 (2018) of their salary from the income tax.

Thinking of LLC to S Corp Conversion? Speak to our Top Expert on Conversions at 702-871-8678.

How do I Change a Nevada LLC to S Corp?

Conversion is a process that will allow a business entity to change the type of entity or even the state of formation or incorporation. This simply means that if you own a Nevada LLC then it can be converted to a C Corporation or an S Corporation. If you choose to convert LLC to S Corp in the state of Nevada then the good news is that the state does not require you to dissolve the existing entity (LLC) for purposes of conversion. Instead, the process of conversion is considered to be just a continuation of the business entity undergoing conversion.

What is the process of converting a Nevada LLC to S Corporation? How does the process work? We have created a guide to help you understand this process.

Conversion Plan

One of the first steps to convert LLC to S Corp Nevada is to create a conversion plan pursuant to NV Rev Stat § 92A.105 (2013). The conversion plan includes specific information like:

  • Name of the LLC electing S Corp conversion
  • Proposed name of the S-corporation
  • State of formation or registration of the LLC
  • Jurisdiction of the law that will govern the resulting entity
  • Terms and conditions related to the conversion
  • Complete text of the incorporation or charter documents of the resulting business entity

The conversion plan should lay emphasis on how the ownership interests in the existing LLC will be converted to the ownership of newly elected S-corporation.

Conversion Voting

Once you have created a plan of conversion, the next step is voting. If you are planning to convert a domestic LLC then the voting to convert LLC to S Corp will be governed by NV Rev Stat § 92A.150 (2013). The plan of conversion has to be approved by those members that own majority of the interest in the current profit of the LLC.

Articles of Conversion

To convert LLC to S Corp Nevada, the plan of conversion has to be approved. Once it has been approved, the resulting business entity will be considered to be a domestic entity and will have to file the following documents with the Nevada Secretary of State pursuant to NV Rev Stat § 92A.205 (2013):

  • Articles of Conversion and it should set forth the name as well as jurisdiction of organization of the constituent entity and the resulting entity
  • The approved plan of conversion to convert LLC to S Corp as adopted by the constituent entity in compliance with the law of the jurisdiction governing the constituent entity
  • Location of plan of conversion, as in whether it is attached with the Articles of conversion
  • The charter or incorporation document of the domestic resulting entity (S Corp) as required by applicable provisions of chapter 78, 78A, 82, 86, 87A, 88, 88A or 89 of NRS
  • The information required pursuant to NRS 77.310, which is name and address of the Registered Agent appointed for service of process.

Conversion Fee and Submission

The fee for filing Articles of Conversion is $350 and it has to be mailed to the office of the Nevada Secretary of State in Carson City. The articles can be submitted through regular as well as expedited mail. In order to convert LLC to S Corp Nevada in the fastest possible time, you can also submit the documents physically at the counter, through fax, and online. You need to provide the “ePayment Checklist” along with the articles.

Note: It is important to provide a forwarding address so that the office of the Secretary of State of Nevada can send copies of process.

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Process of changing an LLC to a Sub S Corp

The subchapter S Corp is basically a closely held corporation that is taxed under the Subchapter S of Chapter 1 of the Internal Revenue Code (IRS) while a Limited Liability Company (LLC) is an entity that is formed under the Nevada State Law. If you own an LLC, you can change the entity’s tax treatment to that of a Sub S Corp without conversion to a corporation. If you wanted to convert LLC to S Corp for tax purposes only then how would the process work?

S Corp for Tax Purposes Only

If you have elected to convert LLC to S Corp Nevada for tax benefits then the process for the same is as follows:

Step 1: File Form 8832

You will be required to file form 8832 with the Department of the Treasury, Internal Revenue Service, so that your LLC can change their default tax classification, which is to be taxed as a Corporation.

Step 2: IRS Form 2553

When you convert LLC to S Corp, you will be required to file IRS form 2553 pursuant to section 1362 of the Internal Revenue Code. This form outlines specifics for qualification of an S Corp and for election to be an S corporation. According to the IRS, business entities eligible for S Corp treatment will be considered as domestic companies that have no alien members, should have fewer than 100 owners/members, and should have one type of stock.

Step 3: File Form 2553

To convert LLC to S Corp Nevada so that your company is taxed as a corporation, you will have to file form 2553 with the Department of the Treasury, Internal Revenue Service. If this form is filed along with individual tax return then the S Corp election will be effective for the tax year for which the return is being filed. If the form is not filed within 2 months and 15 days from the start of the entity’s tax year then the S Corp election will not be effective till the next tax year. Example: If your tax year starts on June 01, 2019 and you are unable to file by August 15, 2019 then the S Corp election will not come into effect till June 01, 2020.

Conversion or Merger

The process to apply for tax benefits if you merge or convert LLC to S Corp is:

Step 1: Business Entity Conversion Form

You need to submit a Business Entity Conversion Form specific to the state.

Step 2: Effectuate a Merger

In a situation where single conversion forms are not available, you will be required to incorporate a new entity and then merge the LLC into the new entity. This process helps in achieving the same effect. The tax basis will be determined by how the interests or assets of the LLC are transferred to the new entity.

Step3: File Form 2553

In order to convert LLC to S Corp or elect S Corp tax status, you will be required to file form 2553.

Are you looking to convert your LLC to S Corp?

IncParadise can help you to convert LLC to S Corp or help you select Subchapter S for ensuring you enjoy tax benefits. We have a team of experts with knowledge of conversion, merger, and S Corp election process. We are one of the top and reliable agents in the state of Nevada and have a reputation of ensuring “customer satisfaction” and “client empowerment using knowledge for better decision making” is our top priority!

We have successfully initiated formation or incorporation of over 10,000 business entities, both foreign and domestic in the Country. Call us today at 702-871-8678, so that we can guide you through the process of converting your LLC to S Corp Nevada.

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