Should I elect my LLC as an S-Corp for taxes, I'm a US citizen in Europe?

I have an LLC formed in Portland, Oregon. I am the only member and do not ever plan on adding more members. Should I elect to have my LLC treated as an S-Corp for my taxes? I am a US citizen living in Europe but I do not qualify for the foreign income exclusion yet. Can anyone give advice that has made this election? I know that as an S-Corp I can pay myself a reasonable salary based on the company’s income and then pay the rest to myself in dividends that are exempt from certain taxes.

If I chose to pay myself 70% of the company’s income as my salary am I required to pay myself the other 30% in dividends or can I leave that 30% in the company’s coffers for legal fees, large chargebacks, and the like? Thank you for reading and with any help provided.

You should talk to your accountant, but the short answer is yes, filing as an S-corp saves on taxes and there is no real downside. Maybe a tiny bit more paperwork?

You can leave whatever amount you’d like in the company to cover expenses. It depends on the kind of business you run, but I’d aim for a flat number (e.g. $10k) rather than a percentage. Whatever profit you leave, you’ll still have to pay taxes on.

Where you should think about percentages is in tax planning. Work with your accountant to figure out what your tax burden is and try to leave that percentage in your bank account.

Revenue at my company is variable, so I find what works best is to take money out of the company when we need it (every month or so), then at the end of the quarter, my accountant runs payroll and marks the money I took out as either distributions or salary. The goal is to get to a “reasonable salary” without overpaying/underpaying taxes.

What a “reasonable salary” is up to you. I’ve seen folks who advocate a 50/50 or 60/40 or 70/30 split. The advice I received was to pick a number that is typical in your industry and defensible during an audit. The IRS offers no real guidance here.

But before you do anything, you really should talk to an accountant.

Thank you very much for that yanokwa. I have a consultation setup with an accountant in a couple days to be sure everything is on the up and up. I’m fairly new to running my own business and I from my research and advice I have shown that what you say is correct. A little more paperwork equals some pretty good savings in taxes. Seems like the extra step in the s-corp election is done by the irs to make it slightly more difficult or daunting to save a little from uncle sam.

yanokwa did you file as an s-corp? If so I found this on irs.gov:

LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification.

Does this mean I only have to file from 2553 and never have to file form 8832? Did you do this or remember how you did it? Again, my consultation is soon but if someone could tell me who has actually done it that would be great.