Unlike many other changes made by the TCJA, the 21 percent flat corporate rate is permanent. If you have missed the deadline, you will need to download Form 2553. It can either be filled out on your computer or printed and completed by hand. This helps the IRS determine whether or not your corporation is eligible. Even if you file a late S-Corp election, the most important information will be the date of incorporation and your corporation’s fiscal year.
Two acceptable reasonable causes are that your company’s president, chief executive officer or similar responsible person neglected to file the election, or your corporation’s tax professional or accountant neglected to do so. Another acceptable cause is that your corporation or its shareholders either did not know of the need to file an election or didn’t know they needed to file the election in advance. Basically, the IRS says that if you have been operating like an S-Corporation anyway but just forgot to file the paperwork that would make you an “official” S-Corporation, they’re likely going to let you slide.
What Is the Filing Deadline for an LLC to Be Taxed As an S-Corp?
All other delinquent IRS Forms 1120S must be filed simultaneously and consistently with the requested relief. Sometimes companies wait until the last minute during the fiscal year to request their C corporation status be changed to an S https://kelleysbookkeeping.com/financial-statements-examples/ corporation. Filing a late S-Corp Election need not be a difficult process when you follow the simple steps recommended in this piece. The S-Corp status puts you in control of your business expenses like you’ve never experienced before.
There are additional representations that must be made on a separate attachment if the entity is also requesting a late corporation classification. To be effective on the same date that the S corporation election was intended to be effective. According to the IRS, corporations electing S corporation status must complete and file Form 2553, Election by a Small Business Corporation no later than two months and 15 days after the start of the tax year when the election is to take effect. For example, if you decide to elect S corporation status for the 2019 tax year, you must file Form 2553 by March 15, 2019.
After You File Your Late S Corporation Election
If you need help handling this matter, ElectSCorp can help you get it all done. Otherwise, please read the content below for the instructions on how to do it on your own. I’ve written a complete guide that includes a list of what you’ll need to become an S-Corp. If you have more questions about how to get started and would like some expert advice, feel free to contact me. Make sure you look through my other posts for S-Corporation owners that I’ve written to help my small business clients like you. When your late S-Corp election is accepted, the notification will also include the effective date.
If you haven’t heard anything and you think you should have, then contact the IRS. Until you receive approval from the IRS, your corporation will not be eligible to file an S-Corp tax return. One of the requirements for the S corporation is that distributions are made according to the amount of stock held (or LLC interest ownership percentage if it is an LLC). Becuase of this, the entity also has to update its By Laws and/or Articles of Orgnaization (if it is a LLC in Texas, it’s Company Agreement). This has to be done to ensure that the entity complies with the equal distribution requirement for S corporations. We’ve helped many companies that thought they filed their election or didn’t know they needed to file by a certain deadline obtain their desired S-Corp status.
My Dog Ate the S Election, Now What?
For the IRS to grant the late election, the company must show reasonable cause for the failure to file on time. In addition to providing reasonable cause, the company must show that it acted diligently to correct the mistake. Taxpayers should note that the What Is A Reasonable Cause Of Late S Corp Filing? IRS will also assess late filing penalties for the Forms 1120S and payroll tax returns. Luckily, taxpayers often qualify for the IRS’s “first time abate” policy and can have the penalties removed by calling or writing the IRS to ask that they be removed.
- Much like other areas where a taxpayer may invoke reasonable cause (e.g., penalty abatement, trust fund recovery penalties, etc.), a taxpayer may use reasonable cause as a defense to failing to make a timely S election.
- Corporations must wait to receive approval from the IRS before they can begin acting as an S-Corp.
- Instead, the company owner and shareholders report company revenue as personal income.
- Their chances of being granted a late S-Corp election increase significantly when they follow these simple steps.
- In one of our previous posts we discuss the qualifications to become a S-Corp and some of the tax considerations.
- However, the IRS does provide relief for late filings due to a reasonable cause.
Alternatively, you can file an election at any time during the tax year before the tax year when the election is to take effect. For example, the corporation electing S corporation status for 2019 could have filed the election any time in 2018. At least 6 months have elapsed since the corporation filed its IRS Form 1120S for the first tax year it intended to be an S Corporation;2. Neither the corporation nor any shareholder was notified by the IRS of any problems regarding S Corporation status within 6 months of the filing of its IRS Form 1120S for the first tax year it intended to be an S Corporation; and3. The entity is not seeking a late entity classification election (e.g., an LLC that “checks-the-box” to be taxed as a corporation and then makes an S election).
Why would I need an S-Corp election?
For a business with no prior tax year, the 2553 must be filed within two months and 15 days of formation. If a business formed on March 10th, 2021 the deadline for submitting the form would be May 24th, 2021 to have S-Corp status in 2021, the first year of business. The above named taxpayer submits this statement in support of a late election to be treated for tax purposes as an S corporation.
- Each shareholder must submit a statement declaring that they have reported any income on all affected returns starting on the date the S-election should have been filed and all subsequent years.
- As the officer of the S corporation, I declare the S corporation has reasonable cause for its failure to timely file the Election Under Subchapter S and has acted diligently to correct the mistake upon its discovery.
- If a business formed on March 10th, 2021 the deadline for submitting the form would be May 24th, 2021 to have S-Corp status in 2021, the first year of business.
- If you find yourself in this unfortunate predicament, you’re best advised to seek a professional who knows how to address the situation.
- The IRS has developed a procedure that requires the business to submit required documentation within 3 years and 75 days of the effective date listed on the Form 2553.
- S corporations are domestic corporations with no more than 100 shareholders and one class of stock.