I have a single member LLC in Wisconsin where the attorney set up the wife as the owner. They have been filing a Schedule C in her name in the meantime. They set up a payroll for the husband, who receives a w-2 at year end. the husband is the brains behind the IT business. I wish to changed the entity to a corp and then made a sub S election. Would it be best to change the ownership to him at 100% or just add him as a member to the LLC so they would both own 50%? With the sub s election, he would then be required to take a reasonable wage (which he already is doing). Form 8832 entity classification election and Form 2553 come into play. Can you walk me through that process?
The BIDaWIZ Team's Answer:
If the married couple is filing a joint tax return, the ownership percentages are irrelevant. Whether the husband has 100% or 50% is really a personal decision and for legal purposes should there be a separation in the future. In order to convert from a single member LLC to a S Corporation, all one has to do is file form 2553 before March 15th to elect S Corp status for that particular year. IRS will send an acceptance letter stating the SMLLC is now an S Corp for tax purposes and must file a form 1120S by March 15th of the following yea