Too late to make a retroactive S-corp election for SMLLC?

[n1njah]

Hello - If a Schedule C 1040 has been filed already, is it possible to make a retroactive s-corp election and amend the 1040, filing an 1120S as well for 2021? Also brings the question of whether there was payroll with timely tax deposits, but what if there wasn't? Does that void the election? Maybe it would be better to elect for 2023 if that was the case...?

Any help is appreciated. Thanks.

[TaxGuyBill]

It is too late for 2021.

For 2022, had they intended being taxed as a S-corporation at the beginning of the year?  The lack of payroll seems to indicate that was not their intention.

[n1njah]

Thank you for your response. I'd have to verify that for 2022 but it may be the same for 2021, no payroll. I assume 2023 is still possible as long as payroll is there?

And 2021 is too late mainly due to the 1040 already being filed or because of the issue of payroll?

Thank you

[sjrcpa · Accepted solution]

There has to be a good reason for making a late S election. As Bill was alluding, it's usually they intended to be an S Corp; did everything in accordance with being an S Corp, and someone (taxpayer, accountant, attorney) screwed up by not filing the election on time.

Your situation does not seem to fit.

[n1njah]

That makes sense. Thank you.

[sjrcpa]

You're welcome.

[Accountant-Man]

I once had a 3 member LLC that made no election, but started paying payroll to each of the members.

Partners can't have payroll, you see.

It was the first year for filing, the election was late, but they had never filed a return before.

It was easy, and it was accepted, no issue. Not the same as your situation, of course.

[Adri]

My client became a single member LLC in 2017; has filed Schedule C & No payroll up to today. Didn't intend to become S Corp.  He now wants to be classified as an S Corp starting  January 1, 2023.    Have read the instructions but is an unusual situation and I am not sure

a) if is possible after all these years  b) If his date of incorporation in Form 2553 will be 2017 and his election to be effective should be January 1, 2023  and/or   c) if writing Filed pursuant to Rev. Proc. 2013-30 should be included.  the one thing he really wants is to be an S Corp this year. 

Thank you very much 

[TaxGuyBill]

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@Adri wrote:

My client became a single member LLC in 2017; has filed Schedule C & No payroll up to today. Didn't intend to become S Corp.  He now wants to be classified as an S Corp starting  January 1, 2023.    Have read the instructions but is an unusual situation and I am not sure

a) if is possible after all these years  b) If his date of incorporation in Form 2553 will be 2017 and his election to be effective should be January 1, 2023  and/or   c) if writing Filed pursuant to Rev. Proc. 2013-30 should be included.  the one thing he really wants is to be an S Corp this year. 

Thank you very much 

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First, have YOU analyzed your client's situation and discussed the pros and cons of being taxed as an S-corporation?  Don't just file the election because the client randomly says that is what he wants to do.  It is a big decision, and needs to be thoroughly discussed so everybody knows what is involved and also know the potential negative consequences of it.

If so, yes, it is allowed, but it is not a late election.  Just file the election on 2553.

[Adri]

You are correct and I have made sure he knows what this means and the changes he needs to make. 

I thank you very much for your answer.   Have an excellent rest of the day.