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How to Avoid Taxes with a S Corporation

You may be thinking of taking a S corporation election for your LLC, which can lead to significant tax savings.



To qualify for S corporation status, you should think about some of the requirements:

  • Being a domestic corporation

  • Only having allowable shareholders (may be individuals, certain trusts, and estates and may not be partnerships, corporations or non-resident alien shareholders)

  • Having no more than 100 shareholders

  • Only having one class of stock (all members having the same liquidation and distribution rights)

  • Not being an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

You as the sole member may want to acknowledge in your operating agreement that the LLC may be treated as a “S Corporation”, and that all of the LLC's income for federal tax purposes would be taxable to the sole member, in accordance with the distributions determined by the sole member at the advice of their accountant.


You may also want to be careful that there is not language in your operating agreement that requires you to be taxed as a partnership.


As always contact your attorney before setting up S Corporations distributions.

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