My boss has a single-member PLLC, but he wants to start paying himself a salary and receive a W2. From what I understand, a single-member PLLC can’t pay its sole member a salary—money has to be taken through owner draws.
So, my question is: Does he need to convert the PLLC into an S-Corp to take a salary? That seems like a lot of hassle since an S-Corp would have to file its tax return. Also, if he’s already started taking a salary, would it be fine as long as the conversion to an S-Corp happens before the year ends? Or does he need to adjust the payroll and reclassify the salary as an owner’s draw until the conversion to an S-Corp is official?
S-Corp election had to be made by 3/15, so it’s probably too late for that now. He could try filing a late election, but from what you’ve said, it doesn’t sound like it would apply in this case since he would have needed to treat it as an S-Corp all along.
He really shouldn’t be taking a salary. Not only is it not allowed, but it’s also unnecessary. As a single-member PLLC, all of his income is considered self-employment income, so he’ll end up paying the same taxes whether through a W-2 or an owner’s distribution. By using payroll, he’s just racking up extra processing fees for no reason. Plus, it could complicate things if he wants to contribute to a SEP retirement account.
What do you mean that he must constantly regard it as an S Corp? It is possible to go back to 1/1/24 with a delayed election and complete some payroll before the end of the year.
The IRS often rejects late elections unless the taxpayer always intended to be an S corp; in other words, the late election will be rejected if the taxpayer filed as anything other than an S corp in previous years. There are a few more exclusions, but proving them is far more difficult.
No, it doesn’t. It is not mandatory to have been a S Corporation from the day of your election. I’ve submitted numerous 2553s under 2013–30, and I’ve never experienced a denial. You are not correct in what you say.
You’re not doing something right if you’re receiving 2013–30 denials. Numerous over the years with no problems. There is no requirement to have intended to be an S-corp from the beginning in the 2013–30 rules. That is simply untrue. Your rejections have to have been due to a separate co-platelet rationale.
Without an election, a single member LLC is viewed as a disregarded entity. It is therefore handled as though it doesn’t exist. You are not able to use yourself as a source of income.
He would need to choose entity status. It might be organised as a S corporation or a C corporation. However, he ought to receive customised guidance on what is best for his circumstances.