LLC to S Corp? A Bookkeeper’s POV

Bookkeeping summer projects aren’t for the fainthearted. Our resident Bookkeeping Mensch, Paul Rosenblum, is here to share the behind-the-scenes reality of juggling routine monthly tasks with complex, thinking-heavy projects like transitioning a client from an LLC to an S Corp, navigating unclear tax advice, and digging into forgotten 2021 transactions. It’s a glimpse into how bookkeepers make judgment calls, set priorities, and stay focused—even when the work feels like a “Mission: Impossible” episode. Listen in to learn what really happens when clean books meet messy business changes.

🎧 Get early access to the podcast by subscribing: https://www.buzzsprout.com/2188873/supporters/new

Transcript

Episode 62

After 62 episodes, it amazes me that I still have more to say and elaborate on. I guess as long as I am performing bookkeeping services, I’ll have something to say, and these episodes will continue. And even though I am cutting down, I am still working between 45 and 50 hours a week doing bookkeeping and working on this podcast. So here I am again to talk to you about my summer projects, as well as the monthly bookkeeping, all making me split my days carefully when I’m in the office or working from home.  It’s (Post) July 4th, so I am heavy into the catchup of projects this summer.  I hope you are having a good summer so far.   Don’t forget to email me with any episode ideas at Bookkeepermensch@gmail.com and if you want to listen to these episodes early, just subscribe to this podcast. I’d love to have you here ‘officially’! And if you like what you hear and learn here, leave a review.  That really helps me out.  I’m Paul Rosenblum.

Before I start this episode’s content, I wanted to mention a very important tax change for small businesses in the tax bill that just got passed.  Office snacks, which had been 50% deductible for many years, and during the worst years of Covid, became 100% deductible, and then back to 50% deductible, in 2026, will NOT be deductible at all!!  (((Noooo))) 

 There are lots of companies complaining about that, so I’ll keep you informed if it changes.  Business meals, working meals, and meals for the employees remain the same.  But filling the kitchen pantry with snacks for employees as of the writing of this episode, will not be deductible in 2026 and moving forward on a permanent basis. Ok, That’s it for the bad news.  No more major runs to Target for office snacks for me to munch on. The last week of December, I’ll go crazy for all stuff that will last and won’t spoil easily. Ok – now to the scheduled episode. 

By the way, these kinds of episodes are for: not only bookkeepers but for business owners to understand what a bookkeeper really does.  It’s not just about straight forward data entry.  

These days, before I leave the office (or if I’m traveling and plan on doing some bookkeeping work), I print out what I need to work on before I travel, or before I leave the office every night. I pretty carefully try and determine which clients travel a lot during the summer as to not put them on the priority list, and which clients are ‘business as usual’ during the summer and want their books done on a regular basis. I usually get those done in the morning.  In the afternoon is when I work on longer projects.  

In the last episode, I talked about some projects that span over 3 or 4 years which have several bank accounts, and credit cards to input every month for each of these companies.  I am working on 1 of those projects --  the other one, although I really want to finish is a slow payer, and decided that I am not doing any work until they pay the last invoice which I sent them almost 2 months ago. And I let them know in an email in a very friendly way. They always pay me, but since I have other projects who are paying me within 24 hours after I send the monthly invoice, I prioritize them. 

Today, I want to talk about another project that has to do with a business owner whose intent was to shut down an LLC as of 12/31/2024 and start an S Corporation as of 1/1/2025.  He got all the paperwork completed well in advance of Jan 1 for the new corporation, but new credit cards had to be applied for and received for the S Corp. By the way, the two businesses are exactly the same – just a change of entity, hence a new set of books, and new credit cards. So, the owner kept on using the LLC past the 12/31/2024 deadline.  Since an LLC doesn’t go through a process to dissolve the entity since it’s unrecognized by the IRS and taxed as a sole proprietorship, the LLC remains open until no sales and no expenses happen for an entire calendar year.  The first 6 months of 2025, the LLC had some sales and some expenses going through it, and the client slowly started to use the Corp. for sales and expenses.  Payroll was going through the Corp. from the beginning of Jan 2025.  I have always learned that in this case, a tax return should be done for 2024 and then if sales and expenses continue in 2025, then another tax return (in this case a Schedule C on his personal tax return) should be done. His accountant tells me that the 2024 tax return is done, and when I enter the 2025 transactions in the LLC, I should end up merging it with the corporation, (label it separately, of course) and then he only has to do one tax return for 2025.  I don’t really understand why he wants to do that, since the personal tax return has to be done anyway. But I pick my battles carefully. Besides, I’m a bookkeeper and not an accountant, although I sometimes speak and write like one. 

Anyway, as I was crossing the T’s and dotting the I’s in all of the downloaded transactions for 2024 for all of the accounts for the LLC , I noticed that there were transactions that were never accepted from 2021!  Yes, I said that right -- 2021!  They are all legitimate expenses, maybe a couple of thousand dollars, although I haven’t added them all up yet.  I called the client, and he told me that it was a personal credit card, and confirmed that all of these expenses were personal – not business.  

I have to check the payments to see if they came out of the business bank account and not his personal account. If the payments came out of the business account, they are already in QuickBooks, since the bank accounts are reconciled. If the payments were from his personal account, then I will determine what to do with these payments.  There are technically, 2 options here: 

1. Accept these transactions for 2021, enter them as personal expenses, and the payments, if paid from the personal account, should be entered as ‘additional capital’ in the Equity section. This way, the profit and loss won’t be changed for 2021.
2. Delete that account from the download section and everything goes away and forgotten about since it’s “old news” from 2021 because the LLC will soon be a closed. 
3. If the transactions were business, then the options would be to enter them for 2021 and amend the tax return, if that is still an available option or enter those transactions in the current year, which would be 2025.  I’m happy that we don’t have to do that one.

After the LLC is all done and reconciled for 2024, then I will continue to 2025 with the LLC.  That will be regular bookkeeping, except for how the large amount of 1099 forms will be handled.  I’d like to send 1099’s from the LLC for 2025 AND a separate batch of 1099’s from the corporation for 2025 in Jan. of 2026. If the accountant insists on combining the 2025 income and expenses from the LLC into the corporation, then I’m not even sure how to create 1099 forms unless I manually input all the 1099 payments in the LLC’s books into the corporation’s books in a separate account. And that’s a lot of manual input, since there are dozens of payments every month to contractors.

 Once the LLC is all input for the first 6 months of 2025, then journal entries would have to be made into the corporation books.  The total sales, and the total expenses by category (or if the accountant wants) maybe, just one number for all expenses, other than the contractors who would get 1099 NECs in Jan. of 2026. 

Are you following all of this?  I think when I actually start doing this in the books, I’ll have to listen to this episode to remember what I said here! And of course, when the LLC is all done, I now have 6 months of the corporation books to do.  The client set up a third-party payroll which the accountant checked and said that the numbers were correct, so I hope they are and that I am able to reconcile the bank account the way it should be. 

 Maybe I’ll work on this 1 to 2 hours a day until this is finished. This is not just bookkeeping, but ‘thinking’ work and I must be focused on this as I do it, so it’s done properly for both companies.  Once all of that is done, it becomes one company and just monthly bookkeeping for the foreseeable future.

I haven’t started the company that would like their bookkeeping to be redone completely since 2017.  I am still gathering information from them. When I start, I will put together a cash-based system, and at the end of each year, match up the accounts payable and the accounts receivable to the tax return.  To manually input every invoice and payment at this point is almost impossible. This won’t be finished probably until the end of this year or even well into next year. 

These are some of my summer projects.  Yes, we have taken one vacation so far, and we might take another 4 or 5 day vacation depending on how the summer goes, and I do take some days off to spend the day at a nice pool or the beach, but the summertime doesn’t necessarily mean less work and lots of time off for me. If you talk to other bookkeepers, even when they are on vacation and on the beach, they take their laptop with them and put together a payroll if needed.  When I go on vacation, I don’t work at all -- I try to unwind and unplug. Because of that, when I’m here during the summer, I work hard. My floor in the building is generally very quiet, and the buildings air conditioning system is more than good – sometimes I have to wear a sweater – so it’s a nice work environment.  I listen to music, take a bit of time off to stream a  2pm baseball game, and even watch a little bit of my favorite old shows -- “Columbo” or “Mission: Impossible”.  Sometimes some of these cleanup jobs are a Mission: Impossible episode in themselves.  

I’m going back to work now --  I’ve had my morning coffee as I recorded this episode, and the caffeine is taking effect.  Bookkeeping calls!  I’m Paul Rosenblum.