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.

[DANRVAN]

7 hours ago, schirallicpa said:

She's an investment advisor. 

Make sure you are familiar with Fleischer v. Commissioner, Tax Court Memo 2016-238 before you consider an S-Corp for an investment advisor.

7 hours ago, Abby Normal said:

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

And in the case of Fleischer it came back to bite him as assignment of income to his S-Corp.

[schirallicpa]

Honestly - the reason to change is "because her colleagues are set up as LLCs "or" electing S status."  An attorney sent her to me before setting up anything.  (Which is amazing!) She's been in business a while.  I am sure she has all the usual insurances.  Thank you DANRVAN for the reference to Fleischer.

[mcbreck]

As a broker / financial advisor, they are required to issue the 1099 to the individual, they are prohibited from sending income to the LLC (regardless of IRS rules it's also a regulator rule). For mine, I do a Schedule C and declare I've paid the full amount to the c-corp (which I do) and then the C-corp reports the income and pays me via a W2. The only reason we do it that way is to pay our flat firm fees (rent, phones / internet, quote fees, research and so forth that we all share as a percentage of revenue...).