It might save you money on your taxes!
If you own a LLC, you might be able to elect S-Corp status for filing your taxes using Form 8832. (If you own a Sole Proprietorship, you may have to become an LLC with your state first in order to file this form.)
Unfortunately, there is no hard and fast rule on when you should do this. It’s usually more beneficial tax-wise to start out as a Sole Proprietor or LLC member, but once you start gaining more profit, it would save you money in taxes to switch over to S-Corp status.
Why can’t I easily tell you to switch over once you start making $x? Because your entire tax situation needs to be assessed in order to see when you would benefit from the switch. All other income and expenses that you include in your taxes, such as other businesses, w-2s, rental income, and ANYTHING else you report to the IRS can affect this. You can read more about it here.
What YOU need to do is ask your CPA if making the switch would be beneficial for you. If you’ve worked with them before, they should already have all of your information and be able to easily project which tax entity would be best for you.
CPAs are busy-busy-busy people. Don’t wait for them to come to you with this option. Ask them now, and see if it could save you some money!
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Blessings,
Valerie Johnston