LLC/Corp Question

[TAG]

I’m losing my memory.

My question: An Ohio business is set-up as a LLC and elects to be taxed as an 1120S.

The legal work has not been done to make it an Ohio Corp (Inc.). Can the LLC pay W-2 wages to it’s owner-members even though it’s not a Corp?

[jasdlm]

I don't get it . . . does Ohio have a requirement for a separate filing (other than 2553) for an LLC to be taxed as an S-Corp?

[jainen]

>>even though it’s not a Corp<<

For federal tax purposes, it IS a corporation. You will have to check state and local rules about payroll because sometimes it has to be treated differently under state and federal laws. In fact, sometimes it must be payroll for state employment tax but not for income tax, as they usually have different definitions. If this doesn't make sense to you, I recommend you use a payroll service.

Actually, I recommend a payroll service in EVERY case, but if you already understand it you will no doubt use the payroll service without needing a recommendation.

[kcjenkins]

Most states tax the LLC the same way the Feds do, so if it was set up as an LLC/Sub S corp, then they will also treat it as a Sub S corp. But not all do. My own state of AR does not recognize it as an S Corp unless it applies for it on their state form. A real pain that can lead to having to have two sets of books for the same business! Check with your state to see what they require, and what the status is if your client did not apply for S Corp status with the state, and if at all possible, make him take whatever steps are required to get them both have the same status. Or let him know that the fee is going to be considerably higher, as you will absolutely hate this situation if they don't.

[OldJack]

For federal tax purposes, it IS a corporation.

As jainen points out it is a corporation for tax purposes. That also means the client must meet the requirements of accounting/bookkeeping of a corporation. That means you, as a professional paid tax return preparer, must have detail balance sheet amounts in addition to profit and loss amounts for proper 1120S tax return preparation.