I'm the sole proprietor of an LLC in the state of Michigan. I'm not looking to do anything fraudulent or alike. I simply want to know if I elect to have my LLC to be treated as an S type corporation, will the money held by the company appear on my taxes? I realize that the LLC will show as an asset, but will it show in any other way, and what kind of an asset will it show as?

  • 3
    Not sure I understand your question. What do you mean by "the LLC will show as an asset"? What is "the money held by the company"?
    – littleadv
    Oct 9 '14 at 19:08

If you elect to have the company treated as an S corp, the profits/losses of the company will pass through to the shareholders (i.e. you) on a Schedule K-1 form every year.

These amounts on the Schedule K-1 are taxable whether or not the company actually distributed the money to you. Typically, the company will distribute profits to the shareholders because they will have to pay taxes on this amount.


So the money held in the company's bank accounts won't appear on your taxes per se, but the profits/losses as reported on the company's tax return will pass through to you on the Schedule K-1. Typically these amounts are taxed as income.

Your tax accountant can advise you on how much money you can/should take through regular payroll and how much can be distributed as a shareholder, as well as help you prepare the corporate tax returns and schedule(s) K-1 every year. There are tax advantages to taking money out of the company through distributions instead of payroll, but the amounts can be scrutinized and subject to a criterion of "reasonable compensation", hence my recommendation for a tax accountant.

  • There are zero advantages for a sole proprietor, unless you have employees. Anyone saying you can "save on taxes by going S-Corp instead of LLC/Schedule C" is trying to convince you to break the law. If all the income of the corporation is earned by you - it is all your earned income. Plain and simple.
    – littleadv
    Oct 10 '14 at 23:45
  • That's simply not true You imply that every single-member LLC without employees taxed as an S corp is breaking the law? I agree the details are important, hence my recommendation for a tax accountant. I realize OP is in Michigan, but in California, for example, electing S corp taxation avoids the LLC gross receipts tax. There are indeed potential tax advantages, and I stand by my answer as it relates to the question asked.
    – Rocky
    Oct 10 '14 at 23:53
  • @Roky no, that's not what I'm implying and is not what I said. What I'm implying is that what you said is wrong. You can be taxed as an S-Corp as a single member LLC, but if you have no employees and all your income is derived from you performing personal services - any tax benefit from S-Corp that you have will be in direct violation of the law. As to CA gross receipts tax - CA also taxes S-Corps on their income, so in the end of the day, if you're not talking about millions of revenue, you'll be better off as LLC.
    – littleadv
    Oct 11 '14 at 2:34
  • Where does OP ever say he only offers professional services? How do we know he doesn't own a laundromat or web hosting company or sell cupcakes? The IRS has always said "reasonable compensation" is the metric for salary vs distributions and there are several relevant cases. OP asked about the tax considerations of an S corp and my answer stands. To say there are "zero" advantages is quite an assumption. It is possible to have no employees, be taxed as an S Corp, receive income as both salary and distributions, and be in compliance with the law. onforb.es/1ngIjuL
    – Rocky
    Oct 11 '14 at 6:02
  • 1
    Coming back to clean up. Little, you need to be more constructive or just don't comment. This answer is very helpful. I'm not trying to pay less taxes, I don't care how much the taxes are, I just don't want my university financial aid to be offset by the amount of money I make under the LLC.
    – iDomo
    Oct 27 '14 at 17:08

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