1040 line to report income from LLC taxed as C Corp

by Barbara
(Washington, D.C.)

I am a single member LLC, no employees. I filled out my tax forms using the 1040 and sched C and sched SE, and discover that I must pay a hefty amount in taxes.

I am thinking that I should file as a C corporation to see if that would be beneficial to me. What line on my 1040 should I report the income from the corporation - or what sched should I use to report the income from the corporation?

In general, what corporate and personal forms and schedules should I use if I choose the C Corporation route?

Answer

You're going to have to convert your LLC to a c-corporation.

And you're probably not going to save as much as you think.

As a c-corporation, your LLC will pay corporate income tax on the LLC's income, which is currently at a rate of 35%. Your personal rate might be lower than 35%.

Second, if you want to pay yourself from your c-corporation, you'll have to go through the whole withholding payroll exercise. That means the LLC pays half your FICA and Medicare taxes, with the other half withheld from your paycheck.

If your corporation has money left over after paying corporate taxes, and paying you a salary, it can then issue you a dividend.

And you'll pay taxes (on your personal return) on that dividend. That's the "double tax" for corporations.

Legalzoom does LLC to C-corporation conversions for $229 + state fees (price as of May, 2009).

But I would first consult with an accountant to see if you'd really save much by converting to a c-corporation before you spend time and money on conversions.