Question

Opting into being a S-Corp

Forum|Forum|3 years ago
November 30, 2022
3 replies
0 views

Hello!

I have a taxpayer who incorporated as an single-member LLC in April 2022 as a roofing company. Taxpayer did not anticipate to make over $100K in his first year and therefore, he did not submit form 2553 upon incorporating. Taxpayer was recently informed that he should opt in to be taxed as an S-Corp due to it tax savings benefits since he did make over $100k. Can taxpayer submit form 2553 now? If so, what reason will taxpayer need to include for reason he is filing form 2553,late? Thank you in advance

Not A Product Question

A

Anonymous_

Employee

See https://www.irs.gov/instructions/i2553#idm139855003794080

M

Mike9241

if it's concluded that a late S-Corp would be approved do not forget between now and the end of the year the active stockholder will need to take a reasonable salary.

Critter-3

You can take a annual salary but filing the 4th quarter 941 and then the annual 940 along with any state forms required ... do some reading up on the payroll requirements.

Rick19744

Employee

Not sure your relationship to the taxpayer, but this individual should not be making an entity decision choice simply based off whether their income level is over or under $100,000.

A few comments:

If you have a SMLLC converting to a sole shareholder S corporation, this will not automatically save on taxes. Someone needs to actually run the numbers.
There needs to be a decision as to a reasonable salary paid to the shareholder. Who is going to handle the payroll filing requirements. There is a cost here.
Fringe benefits need to be considered as most of these will be deemed compensation to the shareholder.
S corporations are a focus of the IRS as they specifically look at the reasonable compensation issue. This could be a cost if audited.
There is a cost of an extra tax return, tracking of basis, etc.
What is the impact of the qualified business income deduction (QBID) on the entity selection.
I don't believe this decision should be made without having a one on one with a tax professional.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.