We are an LLC, but we understand that we might be able (without changing to an S-Corp. ) to file the necessary papers to begin paying social security taxes only on our salaries (excluding distributions) . Currently, as members of an LLC, we have paid the SS taxes (both employee and employer portions) on all income. If we can pay only on our salaries this will obviously result in a significant tax savings. Is it necessary to actually become an S-Corp. or can we be set up (for tax purposes) as a LLC/S-Corp. Hybrid?

Thank you in advance for your comments.

Leroy

Leroy:

This is REALLY a legal question, not a tax question. Recommend you post it in the business law section of the LAW Forum.

To the best of my knowledge, to pay taxes as you wish, you would need to actually become a S-corp.

An LLC can elect to be an S corporation. In the past the LLC had to first file Form 8832 to be treated as a corporation and then to file Form 2553 to elect S corp status. However, the IRS has now streamlined this process so that you only need to file Form 2553 and the LLC will automatically be considered an S corporation. There are some caveats, though. One caveat is that you need to make sure that the LLC would not be considered to have more than one class of stock. An S corp cannot generally have more than one class of stock.

I yield to IntlTax's greater expertise in this matter.