AFTER-SCHOOL JOBS DEBATE

A couple more quick points: Large businesses do like Delaware for a variety of reasons—mostly having to with how sophisticated the Delaware chancery courts are. But this applies to really big businesses that will litigate in Delaware—not small businesses. And Nevada does offer corporations a no-income-tax haven—but you need to set up a real business presence there, with an office, employees, property—the whole enchilada.

Mistake #3: Electing to be Treated as a C Corporation

1. A long time ago if you wanted to turn an LLC into an S corporation—before July of 2004 as I recall—you first had to turn it (for tax purposes) into a C corporation. You did this by filing something called an 8832 Entity Classification Election with the IRS service center in Philadelphia. Then, once that entity classification took effect and the LLC was considered a C corporation, you made a second election to have the new C corporation treated as an S corporation. You did this by filing another form called a 2553 with the same IRS service center you’ll later file your corporate return with.
2. This two-steps-to-an-S corporation process was pretty much a disaster. Thankfully, the IRS finally threw its hands up and said you only need to file the S election paper (the form 2553). Some people still want to do it the old, unfortunately. Which is really dumb. The old way doesn’t work very well. And, in a worst case scenario, you may end up with your LLC converted to a C corporation but not converted to an S corporation.

Note: If you do foul up an S corporation, know that the IRS is very, very forgiving. You might want to get an accountant’s or attorney’s help if you get into this trouble, however. Mistake #4: Electing to be Treated as an S Corporation Too Early

Once a business generates profits well in excess of the amounts paid to owners for salaries, an S corporation election saves the owners big money--sometimes tens of thousands of dollars per owner per year.

But you don’t want to elect S corporation status too early if you were smart enough to start off your business as llc. This is especially true if you’re the only owner of the llc.