SMLLC electing to be taxed as an S Corp

[David]

New client filed a 2014 Sch C for his SMLLC. His profits skyrocketed in 2015.

Since the TP hasn't paid a salary or anything else that an S Corp TP would do, is the late S election still available to him when he files his 2015 tax return?

If the late election is still available does he need to file Form 8832 and Form 2553? Or does he only need to file Form 2553?

Thanks for your help.

[Gail in Virginia]

I may be wrong, but I thought to take the late election you had to have ACTED as though you were an S-corp for the entire year and just failed to make the election.  If he did not pay himself a salary, he was not acting like he was incorporated.

[Catherine]

5 hours ago, Gail in Virginia said:

I may be wrong, but I thought to take the late election you had to have ACTED as though you were an S-corp for the entire year and just failed to make the election.  If he did not pay himself a salary, he was not acting like he was incorporated.

Usually I would agree BUT... were the skyrocketing profits a surprise?  In the latter part of the year, perhaps, or for someone who did not really keep their books up to date?  I have one S-corp where they do everything on spreadsheets (I detest that, but the one year they tried an accounting program was even worse and so far they have not had enough profit to hire a bookkeeper) and they don't really "get" how to put it all together for a P&L.  So our first indication of how things are going is when they send me info in November.  First year of profit was a big surprise to us all.  In that case it was not huge so the S-corp officer-as-employee compensation issue was not a particularly big hurdle.  

However, if sales were growing throughout the year, and/or his books showed a good profit by mid-year-ish, then I concur with Gail.

[Abby Normal]

To answer the question, you only file 2553, but you'll have to file it under the rev proc for late elections. It will most likely be approved. I've had to do several late 2553s this year.

[BHoffman]

See Rev Proc 2013-30 for late elections.  Why can't the shareholder take a 2015 payroll check?  

 

BTW:  I have never regretted my habit of calling all of my business clients, including those little Sch C filers, in November to ask how they are doing.

[David]

I was planning to process an annual payroll check and reclassify distributions to salary by 12/31/15. Then file the 2553 with the tax return. 

If the actual payroll doesn't get processed by tomorrow, would a relcassification of distributions to salary on Sch C subjecting the salary to SE tax work? I know this isn't as clean, but have others had success with this method?

Thanks.

 

[David]

To answer the question, you only file 2553, but you'll have to file it under the rev proc for late elections. It will most likely be approved. I've had to do several late 2553s this year.

Ok, thanks for your help. For some reason I thought the 2553 was filed for either C Corps or multi-member LLCs and a SMLLC had to change their classification first by filing the 8832.

[Jack from Ohio]

I am curious how the late/non filing of 941 forms will be treated?  Am I missing something?  Seems like an attempt to skirt he proper procedures.

[Abby Normal]

12 minutes ago, Jack from Ohio said:

I am curious how the late/non filing of 941 forms will be treated?  Am I missing something?  Seems like an attempt to skirt he proper procedures.

There will only be one paycheck in December so all forms will be filed on time.

[Terry D EA]

On 12/30/2015, 3:42:12, Abby Normal said:

There will only be one paycheck in December so all forms will be filed on time.

Agree.