PLLC S Corp: Everything You Need to Know
A PLLC is a professional limited liability company. 3 min read
2. What is a PLLC?
3. Considered Partnership
4. Individual Reports
5. S Corporation Election
6. C Corporation Election
7. PLLC Benefits
PLLC S Corp
Starting a combination PLLC S corp (Professional Limited Liability Company S corp) can provide many advantages for a business owner, particularly when it comes to taxes. Utilizing both business structures may be an ideal option for your company.
What is a PLLC?
A PLLC is a professional limited liability company. This is a form of business structure that is ideal for professionals in the medical field, attorneys, accountants and others that provide similar services. A PLLC protects the personal assets belonging to the owners of the business from any legal issues brought against the business, though not from any liability for personal, yet professional actions.
Forming a PLLC is simple and may have as many members as the owners would like. It provides the owners with a variety of options when it comes to taxes.
All PLLCs are regulated by the state, and all states have different regulations. It is a structure that is specially designed for licensed professionals. Currently, 30 states have the legislation that recognizes and allows these professionals to form a PLLC as a business entity. Only three of these states require it.
California does not allow licensed professionals to form any sort of LLC. However, you must have some form of professional corporation if you want to be personally protected from the liability of your business. For licensed professionals that are in states that do require a PLLC, you will need to speak to a business attorney in your area or your licensing board to see if your services are included in the PLLC umbrella.
PLLCs with more than one member are considered a partnership when it comes to the IRS. The profit from the business is not taxed at the LLC level. Instead, it is passed through to the individual members. They will then report them on their own personal income tax returns. However, the PLLC is required to pay employment taxes.
Partnership PLLCs have to file Form 1065, a Return of Partnership Income, that displays the business’s income, any deductions, profits made, as well as losses. This form is simply an informational form and does not assess taxes. The Schedule K-1 will show the share of each partner that is reported on personal tax returns. All PLLC members have to file a Schedule SE to pay self-employment taxes on their profit shares.
S Corporation Election
A PLLC can opt to be treated like an S corp in the eyes of the IRS. It is important to note the following:
· You will have to file a Form 2553 to make changes to your tax status.
· Any S class PLLC will file a Form 1120S tax return for corporations to report earned income, costs, and other important business information.
· The earnings of all members are reported as dividends or wages. Thisis based on the work done and the owner’s ownership percentage. It is then taxedlike personal income.
· You can pay yourself a salary with an S corporation. This will help protect you from a portion of self-employment taxes. This can lead to thousands of dollars in savings. The rest of your income will be received as dividends.
C Corporation Election
You can also opt to elect to be treated as a C corporation. This functions the same for a PLLC as it would for any incorporated company. The PLLC will file a Form 1120, Corporate Income Tax Return. It will pay all taxes at the standard corporate tax rate.
It will retain the earnings as a corporation. A C corporation will not distribute them to shareholders for the purposes of personal tax reporting. Members are instead taxed on the amount they receive as a corporate employee or on the dividends received as shareholders.
Setting up your services as a PLLC will provide protection from any creditors that seek unpaid debts owed by the PLLC. It also provides you with legal liability protection from legal problems faced by the business. In addition, it will also provide you with asset protection. Keep in mind, however, that it will not provide you with malpractice protection.
If you need help with setting up a PLLC as an S corp, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with, or on behalf of companies like Google, Menlo Ventures, and Airbnb.