CPA In Houston Answers: Can an S Corp Own an LLC?
Evans Sternau CPA is a CPA in Houston and provides tax planning and tax advisory services to help you answer the question: can an S Corp own an LLC?
As a CPA in Houston, a common question we get from clients is “Can an S Corp Own an LLC?” The short answer is yes, an S Corp can own an LLC.
What is an S corporation?
S corporations are pass-through corporations that elect to pass-through the income and losses to their owners. S corporations are generally (certain exceptions apply) not subject to federal income tax. Rather, the income and losses are reported on their owner’s personal tax returns and the tax is paid by the owners.
Who can own an S Corporation?
In order to qualify for S Corporation status, certain requirements must be met. The corporation must be a domestic corporation, it must be owned by only individuals and some trusts and estates. A partnership, corporation, or non-resident alien is not allowed to own an S corporation. The corporation must also have less than 100 owners and must only have one class of stock. In addition, certain industries and types of companies are not qualified to be an S Corporation.
What is an LLC?
An LLC, or Limited Liability Company, is a business structure that is allowed by state statute. If you are interested in establishing an LLC it is generally best to work with a qualified attorney. Owners of an LLC are referred to as members. There are generally no restrictions on the amount or type of owners of an LLC.
How is an LLC taxed?
The tax classification of an LLC depends on the number of owners and elections made by the LLC. An LLC can either be taxed as corporation, partnership, a disregarded entity, or an S corporation.
How is an LLC taxed?
The taxation and tax filing requirements of an LLC that is owned by an S corporation depends on how the LLC is structured.
If the LLC has more than one member and did not elect to be taxed as a corporation, the LLC will be a partnership and will file a partnership tax return and will issue a Schedule K-1 to the S corporation.
If the only member of an LLC is the S corporation, the LLC will be considered a disregarded entity, and typically no separate tax filing is required. The income and expenses of the LLC will reported directly on the tax return filed by the S corporation.
About the Author
Christopher Sternau, CFP®, CPA
Partner – Evans Sternau CPA LLC
832-482-4240
Christopher Sternau is a Certified Public Accountant and Certified Financial Planner with over a decade of experience providing comprehensive tax and financial planning services to several of the wealthiest families in the United States. He focuses his practice on complex individual and closely held business tax planning and preparation. His clients have business interests in a wide range of industries including oil and gas, mining, real estate, cattle ranching, retail, technology and many others.
Chris is the founding member of Evans Sternau CPA LLC. Prior to founding Evans Sternau CPA LLC, Chris led the tax department for a family office in Houston, Texas. He also spent several years as a Tax Manager at Andersen.
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