Single member LLC considering to convert to S-Corp. Advantages?

[geiserttax]

I have a client who is a single member LLC. He read an article about the savings you can reap from converting his LLC to a S-Corp. He grosses around $150 K per year. Does it make sense for him to do this? He is trying to minimize his tax burden.

[qbteachmt · Accepted solution]

What savings are these?

What they don't realize is that the tax burden is moved. It isn't necessarily a savings.

For instance, now there will have to be payroll. Is this the type of operation where regular activities make payroll a reasonable outlay? Even as a sole proprietor, they get the "employer share" credit for FICA from the SE. Now the S Corp will pay it. Well, who "owns" the S Corp and is in essence incurring this? They are, as the sole shareholder. Shifted, not eliminated.

Is the type of operation appropriate to the S Corp model? Example, does not own real estate. Example, has other employees and wants to institute great benefits packages to retain those employees. Understands how expenses are managed, vehicle use, personal expenses, office costs, etc, under an S Corp. Knows what it means to be President and Employee. Etc.

[sjrcpa]

I'd say no it's not worth it for a business this size. 

qbteach makes a lot of good points.

Not mentioned-additional accounting fees to keep double entry books-trial balance, Balance Sheet and Income statement; plus tax prep fee for an 1120S.

[Just-Lisa-Now-]

What kind of net profit would he have after paying himself a reasonable wage?

(S-Corp owners go on payroll and get a W2)

[shf1957]

Honestly, and I don't mean this as an insult, but with that size of income.  I do not think it's beneficial. One thing would outweigh another.   Plus it's extra work for accounting and extra cost for preparing taxes.   I could be wrong, but I think it's best for that party to keep doing what they are doing.  It's a blessing that he has a profit when so many are running at losses.