Single Member LLCs and the Pass-Through Entity Tax Election 

This article is a follow-up to our article regarding the Pass-Through Entity Election located here /2022/06/north-carolinas-new-pass-through-entity-tax-election/ .  

Suppose you have a profitable single-member LLC (SMLLC) reported directly on your personal income tax return. In that case, it may be advantageous for tax purposes to convert it to a partnership or an S-Corporation. By doing so, you now would have a separate entity that would have the ability to make the PTET election, potentially saving federal income taxes on the North Carolina income taxes paid by the entity. As discussed in the previous article, state and local income taxes (SALT) are capped t $10,000 at the individual level.    

For SMLLCs holding real estate, a partnership would probably be the best structure and simply adding a spouse as a member would be the easiest way to accomplish this.  

For SMLLCs that are operating companies making a subchapter S election would accomplish this. In addition, there are other potential tax savings in converting an operating company to an S-Corporation. These include potentially reduced self-employment taxes and the 20% qualified business income deduction maximization.     

In addition to the tax savings, there would be additional administrative costs with filing a separate tax return for the new entity.    

There are many moving pieces to making this decision. Our Dreher Martin team can evaluate your situation and recommend whether the tax savings warrant the additional cost. If you have any questions, contact one of our team members.    

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