I classified my single member LLC as an S-Corporation to take advantage of the tax advantages for qualifying small businesses as an independent software contractor. This worked well while generating revenue; however, I ceased working under the LLC and am no longer generating income through the entity.
I'd like to preserve my LLC's name and brand, and be able to use it should I resume contracting work in the future; however, I am confused about my options going forward, especially since the business still has associated expenses for annual filings with the state and with keeping web domains.
So far research suggests:
- Dissolution and revocation of my S-Corporation status. If I pursue this, I can reorganize with my state (Michigan); however I cannot re-elect S-Corporation status for about 5 years according to 26 U.S. Code § 1362 (g). I suppose this means the LLC would need to be taxed as a C corporation which loses the tax advantages.
- Generate a minimal amount of revenue to profit. This could help prevent my business from being reclassified as a hobby by the IRS since I would never declare a loss.
- File a zero return for 1120-S? I don't even know if this one is possible since the there are clear expenses that the business must pay (e.g. annual filing and web domains). Is it allowed to omit tax deductions?
Option #3 would be ideal; however, from what I can tell, I must report all expenses on 1120-S, this would show as a loss and leave my business subject to being reclassified as a hobby. Option #2 is likely feasible, but truly I'd like to just pay a few dollars per year to keep the LLC inactive. For either option, I am aware I must continue to file Form 941 quarterly showing no wages paid, and filing 1120-S annually.