A worked example
The structure the business is taxed under
Dani, 42, married, runs a profitable LLC throwing off $400k a year. Nobody ever elected anything else, so it is taxed as a sole proprietorship and self-employment tax applies to all of it.
“What would electing S-corp change — and if I incorporate to a C-corp before an exit, does it matter whether I do it now or in three years?”
What the projection shows
The same $400k under three structures: self-employment tax on all of it, payroll tax on a stated salary only, or 21% to the company with a second tax on what it pays out. Then the conversion timing, where converting later means a shorter §1202 clock and appreciation that falls permanently outside the exclusion.
What the projection also found
Nothing here was left blank. These follow from the figures above, under the assumptions this example states.
- The sale makes $19,990,000 of gain and §1202 excludes $7,000,000 of it, leaving $12,990,000 taxable and $3,661,794 of tax.
The planner arrives with this household already filled in. Change anything — the balances, the ages, the assumptions — and run it as yourself.
A projection under stated assumptions, not financial or tax advice.