S Corp Election: Taxing an LLC as an S Corporation

Minnesota attorney Aaron Hall explains how an LLC can be taxed as a subchapter S corporation.


Clients often ask me whether an LLC can be taxed as S Corp. The answer is yes. All you have to do is fill out IRS tax form 8832.

Why would you want to do this? Well, many times business owners don’t want to be taxed as an S Corp right away, so they form an LLC. That allows them to pay their self-employment tax which is about 15% at the end of the year. Whereas with an S Corp, you have to pay the payroll tax and file it quarterly, that’s every three months.

But you get a benefit with an S Corp. You can potentially save a substantial amount of money, many times up to about $8,000, by avoiding excessive payroll taxes on an owner who is an employee in the business. If you’re wondering about whether you can benefit from that, you should work with a CPA or an attorney who can analyze your situation, assess a fair market value for your wage, and determine whether your profits will substantially exceed that wage. If they do, you can save by electing to be taxed as an S Corp. The amount of your savings will depend on how much your profits are in a particular year.

I have clients where you have two or three owners and each owner is saving around $10,000 a year in payroll tax or self-employment tax, by being taxed as an S Corp. So as you can tell the savings is significant, and it makes sense to work with a knowledge attorney or CPA in getting this set up right because the small amount you will pay initially for that legal tax advice will potentially save thousands of dollars later on.

Learn more in this article written by attorney Aaron Hall: Can an LLC be Taxed as an S Corp?