I am a sole proprietor LLC, considering filing for an S Corp. I take draws and haven’t yet put myself on payroll but I will implement payroll with 2 employees soon. Should I choose S Corp, or stick with the sole proprietorship?
Here are two things to consider:
1) Might just be verbiage, but if you say “I haven’t yet put myself on payroll.” means you were considering it, keep in mind that SMLLC owners cannot issue themselves a paycheck. You should continue to take a draw, but it is always a good idea to escrow your own taxes for estimates.
2) I would heavily weigh the differences between SMLLC, S Corp, and now even C Corp given the new tax code. All three have very strong potential given your details we just don’t have from your question as well as specifics from the how the bill will be interpreted. The second factor is to look into the state variances because the state-level impact between SMLLC and S Corp may be significant. In PA, for example, there is a difference on how they are treated.
Brad D. Messner, a Finance and Tax Expert, is a Vice President & Enrolled Agent at M & J Tax Service.