Welcome back! Ask questions, get answers, and join our large community of tax professionals.
Showing results for 
Search instead for 
Did you mean: 

C Corp vs LLC taxed as an S Corp

Level 2

Hello, My experience is limited to creating the tax return: I would like to understand what is the technical difference between a C Corp and a LLC filing, both filing as S Corp.
I was trying to convince a (free) customer to close his new C Corp (1 owner) and open an LLC for simplicity. (I’m aware you need to make a 2553 election for C Copr)
His question was why? I could not really answer. I know that as a C Corp he needs to hold meetings, and other technicalities but from a tax perspective is there any difference?

0 Cheers
2 Comments 2
Level 15

I'm curious why you would tell a client something like that when you can't answer that question. 

For the record, if you are starting from scratch, there is no difference for tax purposes between a corp that elected to be an S corp or an LLC that elected to be an S corp.  However, there could be a lot of complications going from a regular C corp to an LLC.

Slava Ukraini!
Level 15

A few things to consider: both C and S Corp require payroll. That isn't a "savings" as many people think of it. That simply shifts costs from the individual to the entity, and since you have only the one person, it's still "their" money = no real savings. C Corp is double taxation, in that the entity stands separate from the Shareholder (not Owner) and is taxed, via the Form 1120. It would matter if real estate is involved; it is not recommended that an S Corp hold real estate.

And you stated this is only 1 person, so there should be an analysis for why to even consider being an LLC and why to elect to be treated as an S corp. You don't need to be an LLC in most cases; there are some professions where that is required.

In other words, every entity type has its positives and negatives and you need to know the reasons for each, then see if this person's activities fit into any important provision that makes the difference.

"Level Up" is a gaming function, not a real life function.