Converting an LLC to a Corporation (or vice versa)
Question:
Once I have created an entity, such as a Limited Liability Company, can it be changed to another entity type? How about corporations? Can corporations be changed into LLCs?
Answer:
Things change… Your business can too!
Getting your business started can be overwhelming. You have a product or service to promote, paperwork to file, taxes to set up and much more. If you're like many business owners, you may have a "day job" funding your start-up. You may be working insane hours to hold it all together as you pursue your dream of business ownership.
It's a crazy busy time and absolutely exhausting but eventually, the dust settles. You have found some semblance of balance and you have a system in place! Your business is growing and you may find yourself wondering if you chose the best entity type. Maybe you should have filed a corporation instead of a LLC and now you're stuck! Not to worry; you can change your business to suit it's grown up, functional self. But why would you want to change your entity type?
Converting your LLC to a Corporation or S-Corp:
Have you hired employees? If you want to have employees (instead of contract workers) and withhold W2 wages for them, a corporation would be the best choice. LLC's pay self employment taxes because W2 wages are not being withheld. If the business is going to be paying W2 wages, don't add self employment taxes to employer taxes; convert to a Corporation or S-Corp!
Filing your first return and feeling the distress of that mammoth tax payment? Why is it so high? Well if your business is a LLC you are paying self employment taxes. That means that you are covering the employer and employee taxes for Social Security and Medicare. If the LLC hasn't saved money for tax season it can be a pretty hard blow to the bank account. If you are the kind of person who struggles with saving, converting to a corporation or S-Corp and making monthly tax deposits might be the best choice for you.
Converting your Corporation or S-Corp to a LLC:
Are you the only person on the payroll and tired of those pesky monthly tax deposits and quarterly returns? Maybe you'd rather pay a higher tax rate for the convenience of eliminating all that paperwork. Converting a corporation or S-Corp to a LLC will eradicate your monthly state and federal filings and free you up to focus more on building your business (and maybe carve out a little you time as well!).
If you have any questions or need help picking the entity type that is best for you, give us call at 888-886-9552 Monday through Friday from 7am to 5pm MST (real people answer the phone!).
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