LLC to S-corp or Corp to S-corp. ?

[schirallicpa]

Which is the preferred method?  Or should we just tell her to stick to the LLC.  

New client.  She's an investment advisor.  Has operated as sole proprietor and pays se tax of 30K.  She reports a lot of dividends and cap gains. Other income from her husband's pension is minimal.  She absolutely should be set up as an LLC.  Has it in her head that she should be an S-corp.  

I'm wondering if it makes more sense to go one way or the other from LLC to S-corp or just start a corp and elect S status.  If anyone has a pro or con either way.  Fees are not an issue. 

[Abby Normal]

First and foremost, she needs adequate errors and omissions insurance as well as regular business insurance, and a personal umbrella policy for however many millions makes sense. But in the past 30 years I've only done LLCs, which she could do and remain a sole proprietor. Whether it's worth electing to be an S corp is hard to say, but factors to consider are losing the home office deduction, paying for payroll processing and payroll tax returns, and paying for an S corp income tax return.

With a service business, the IRS is going to want to see almost 100% of profit being taken as salary and not distributions.

[BulldogTom]

What is the reason for wanting to change the tax structure?   Strictly tax savings?   SEHI Deduction is the same as SP or S Corp.   Tax Rates don't change.  Is she looking to manipulate by paying a low salary and taking large distributions?   Lots of people think that is how to beat the SE tax.     

Tom
Longview, TX

[Lee B]

There are a lot of questions that need to be answered before a decision like this can be answered.