Is it too late to elect S-Corp for this year?
Short answer
Often it isn't. An S-Corp election can apply to the current year if it's filed in time, and the IRS can accept some late elections when there's reasonable cause, so check before you assume the year is lost.
Otavio Mayole, Co-founder, DeCypher FinancialsUpdated
The election is made on IRS Form 2553. It's generally due within two months and 15 days of the start of the tax year you want it to apply to. Miss that, and late election relief may still be available if you have a reasonable cause.
Things that can block or limit it:
- Your LLC's start date. An election can't apply before your LLC existed. If you formed mid-year, the months before are filed as a sole proprietor.
- Your LLC's standing. If the state dissolved or forfeited your LLC, it has to be reinstated first.
- Your EIN. If your business name changed and the IRS records don't match, the election can be rejected.
- Payroll. Once you're an S-Corp, you need to run payroll and pay yourself a reasonable salary for that year.
IRS approval can take a couple of months. If the IRS approves a later start date than you asked for, the year gets split between a sole proprietor return and an S-Corp return.
If an election was filed wrong in the past, sometimes the cleanest fix is filing those years as a sole proprietor and electing correctly going forward. Every situation is different.