Accepted Answer

Hello zombie,

There really is no difference from state to state on how the S Corp files or pays taxes. You are correct in your observation that by choosing S Corp status, you could save a significant amount in SE taxes, and this is the chief advantage to electing taxation as an S Corp.

As an S Corp you will be required to pay yourself a reasonable salary and any profits that exceed that amount will then be paid to you as dividends, and the SE taxes do not apply to the dividends paid.

The only other difference between an S Corp and an LLC is the different tax forms that need to be filed. As an S Corp, at the end of the year the S Corp would file a tax return on Form 1120-S. The S Corp itself pays no taxes, so the Form 1120-S is more of an informational form that reports the income and expenses of the corporation. The S Corp also issues K-1 forms to the shareholders to report the amount of dividends that were paid. The individual shareholders then report their wages from the salary and the dividends received on their own personal tax returns.

If you simply remain an LLC, then there is less paper work involved, because the LLC does not file a separate tax return and no formal salary is required But you would pay higher taxes by simply remaining an LLC because all of your profits would be subject to SE taxes.

If this was helpful please press the Accept button.

Thank you zombie and let me know if you have more questions.

Expert:	Merlo
Pos. Feedback:	99.8 %
Accepts:
Answered:	10/29/2009

Accountant

25+ years tax consulting. Specializing in returns for US citizens living abroad