LLC vs S-Corp in Wisconsin

Wisconsin separates the entity type (LLC, corporation) from the federal tax classification (disregarded entity, partnership, S corp, C corp). You can be a Wisconsin LLC taxed as an S corporation. That is what most profitable trade shops eventually run. Wisconsin LLC basics. Articles of Organization are filed with the Wisconsin Department of Financial Institutions (DFI), Division of Corporate and Consumer Services. Check the DFI fee schedule linked below for the current formation fee and the current annual report fee. Wisconsin LLCs file an annual report with DFI to stay in good standing, with a due date keyed to the quarter the LLC was formed. Default tax treatment. A single-member LLC is a disregarded entity for federal tax. Profit and loss flow through to the owner's Form 1040 Schedule C and the owner pays self-employment tax on the net. A multi-member LLC defaults to partnership tax treatment on Form 1065. Either can elect S corp treatment by filing IRS Form 2553. Why trades eventually elect S corp. In an S corp the owner-employee takes a reasonable salary (W-2 wages subject to payroll tax) and distributes remaining profit as a shareholder distribution that is not subject to self-employment tax. The savings relative to a disregarded-entity LLC start to matter once the business clears a meaningful profit after paying the owner a reasonable wage. A CPA can run the breakeven for your specific numbers. Wisconsin state tax notes. - Wisconsin imposes a state income tax and has an S corporation tax regime that mirrors the federal pass-through treatment. S corps file Form 5S. See the Wisconsin Department of Revenue link below. - Wisconsin offers a pass-through entity elective tax (Form PW-1, tax-option (S) corporations) that lets qualifying S corps pay state tax at the entity level, which can be useful under the federal $10,000 state-and-local-tax cap. Ask your CPA whether the election makes sense for your year. - Single-member LLCs generally follow the owner's federal tax classification for Wisconsin income tax as well. Rule of thumb. Form an LLC first. When profit after reasonable owner wages is high enough that the S-corp payroll tax savings beat the added payroll, retirement plan, and CPA costs, elect S corp. A CPA with Wisconsin construction clients can price the transition.