If you’ve legally established your business as a C Corporation or Limited Liability Company (LLC) that has elected to be viewed as a corporation for tax purposes, you have the option of filing IRS Form 2553 to get S Corporation tax treatment.
Why would you want to do so, you ask? Because it could make a big impact on your business’s bottom line.
The Potential Advantage for LLCs
LLC owners who find themselves with a high self-employment tax burden might benefit from choosing the S Corp election. LLCs are normally taxed like sole proprietorships—with all business profits subject to self-employment taxes. With S Corp tax treatment, self-employment taxes are only applied to wages and salaries rather than on all business profits.
The Potential Advantage for C Corporations
C Corporations can benefit from S Corp election because it avoids the costly double taxation C Corps normally face.