Changing S-Corp to LLC

[Unregistered]

I have a client with a very small business (revenues about $10,000) that for some reason was set up as an S-Corp. She would like to convert the S-Corp to an LLC so she can pay herself without the hassle of filing quarterly payroll returns.

From what I can gather the process involves filing the final 1120S and final K-1. She is the only employee/shareholder. Then we'll file Form 966-Corporate Dissolution. Is it necessary to first revoke the S election? And does anyone have any idea what goes on line 10-Section of the Code under which the corporation is to be dissolved?

Lastly, we'll file 8832 to change the classification to a disregarded entity.

Anything I'm missing?

Thanks for any help

[rosieea]

I have a client with a very small business (revenues about $10,000) that for some reason was set up as an S-Corp. She would like to convert the S-Corp to an LLC so she can pay herself without the hassle of filing quarterly payroll returns.

From what I can gather the process involves filing the final 1120S and final K-1. She is the only employee/shareholder. Then we'll file Form 966-Corporate Dissolution. Is it necessary to first revoke the S election? And does anyone have any idea what goes on line 10-Section of the Code under which the corporation is to be dissolved?

Lastly, we'll file 8832 to change the classification to a disregarded entity.

Anything I'm missing?

Thanks for any help

I believe the code section you want is 336. There is no need to revoke the S election; just mark the 1120S as final return, and the K-1s as final. Seems to me the formation of the LLC is a separate matter & has nothing to do with the S-Corps. The Corp will be gone. She will be a single member LLC, and since there are no employees, she won't even need an EIN. The LLC is a disregarded entity and there is no 8832 involvement if she wants to keep it that way. She's not changing any classification and will be filing her new business as a Sch C.

[Bees Knees]

The 966 instructions give code section 331 as an example. They both appear to do the trick.

[OldJack]

no federal conversion.

I agree with the other posts. There is no conversion allowed as far as federal taxes, she has to setup an LLC with her state and end the S-corp with the state and federal.

Final S-corp tax return must be filed accounting for all assets of the corp being sold or distributed to the shareholders. If there are any tangible assets they must be sold or distributed at FMV to the shareholder with the S-corp recognizing gain or loss (f4797) that is passed to the shareholder to pay any tax. The shareholder than may have gain or loss on stock basis for Sch-D.

You should note that there is a new once a year filing form for payroll of small business. I don't remember the form number but its like form # 944 that replaces form 941 so the business only has to report annually.

[taxmandan]

Coversion of S-Corp

OldJack is right, your client sounds like a perfect fit for the new annual filing of payroll tax returns on form 944. She won't have to mess with the quarterly reports anymore and won't have to make all the legal changes to an LLC. Saves her time and money which will make you a hero in her eyes.

[Gretel]

Annual returns

I don't understand why everyone is so exited about the one form (944) being annual now. It did change the state reporting a bit. State reporting is still on quarterly basis.

[Jesse]

Form 944

Eligible employers are those with estimated annual employment tax liability of $1,000 or less, so you would have to pay less than $6,550 with no federal withholding.

[rosieea]

The original post indicated that this was going to be a single member LLC with no employees. There will be no payroll reporting, annual or otherwise.

[Jesse]

rosieea

The reason the client would like to convert the S-Corp to an LLC so she can pay herself without the hassle of filing quarterly payroll returns. I think the Form 944 was pointed out as an option to remain an S-corp and not have to file Qtly reports.

[Unregistered]

I don't understand why everyone is so exited about the one form (944) being annual now. It did change the state reporting a bit. State reporting is still on quarterly basis.

My state does allow annual filing of state return when qualigy - no Quarterly. In another state my client does not have to file quarterly - regardless of income.