LLC filing S-Corp election for taxes

11 Replies

I've operated my business as a straight single member LLC for the last 10+ years. This year (2016) my income was much higher and I figured it might be useful to looking into the S-corp designation with the IRS. What is the deadline for filing this designation and still be able to use it for my 2016 income? If I file it for this year, do I have to continue with the S-corp designation for future years?

Any general rules of thumb for how to determine wage vs dividend for a house flipping business?

I asked my current tax guy a number of these questions but he wasn't "familiar" with them.  I think it's time to start shopping around for a new tax guy/gal that is well versed in real estate tax preparation.  Any suggestions for tax professionals/CPAs/etc?

If your LLC has been around for 10+ years, then you are late to file an S election for 2016. I recommend you get with a CPA who is knowledgeable and can help you achieve your goals.

Lance and Steven are both correct - if you want to elect to be taxed as an S-Corporation there are deadlines as to when you have to elect to make it effective for the current year.  You can't elect to be an S-Corp for 2016 but you could for 2018 and beyond.

The questions is whether the benefits from filing as an S-corporation are greater than the admin costs that come with it (corporate return, payroll returns, etc.).  This largely depends on the income you make and the amount of time you spend on the business.  Anyone who is familiar with corporate taxes should be able to help you with this, if you are working with someone who can't advise on this area you may want to look elsewhere.  There are no education requirements or licensing requirements to prepare tax returns for a living so there are many people who are OK preparing returns but that doesn't mean they are very knowledgeable in tax.

Originally posted by @Steven Hamilton II :
Originally posted by @Lance Lvovsky:

If your LLC has been around for 10+ years, then you are late to file an S election for 2016. I recommend you get with a CPA who is knowledgeable and can help you achieve your goals.

 Partially true, he would not be too late for 2018 though :D 

Hence I said "late to file an S election for 2016". I agree - not late for 2018, but he asked about 2016. ;) 

@Nathan Letourneau it may be worth noting that your time is running out to file 2016 timely.  Assuming you filed an extension, the extended due date is Monday...

The deadline for election is within the first 75 days of the tax year you wish to make the election, unless there is a petitionable reason you missed the deadline. So if you want to do this for 2018, you have until March 15, 2018. Talk to your CPA.

Thanks everyone for the information.  I did make an error when posting this.  I meant to say my 2017 income will be much higher (not 2016). 

@John Woodrich thanks for the reminder about 2016 taxes.  I just had sent all my info to my tax guy right before posting this question.  Your right about people being decent at preparing returns, but not always knowing the tax rules.  As I mentioned, I think I'm going to have to find someone who is well versed in real estate and taxes.  Also, what's a ballpark range for what it costs to elect the S-corp status (corporate return, payroll, etc)?  Are you allowed to elect S-corp status one year, but then not elect it the next?  What would you say is the minimum a person should make in order to make the s-corp worth while?

@Lance Lvovsky & @Steven Hamilton II You mentioned that I can't elect s-corp for 2017....only for 2018. Since posting this, I've found some more info on when a person can elect the s-corp status.  How come some CPAs say they can (basically guarantee)  late s-corp election for 2017 right now (one even mentioned they could do it up to March 2018).  Have you ever done that?

Not sure who your tax guy is but he isn't going to like seeing your information come in the weekend before the due date.  Also interesting that he hasn't reached out to you asking if you wanted help filing your returns by now....

As far as your S-election question goes, there are late filing relief provisions that will allow you to file a late S-election.  if you meet the guidelines it will go through.

If you decide to be taxed as an S-corp you better be sure.  You can't flip back and forth.  I don't have the time to look into it but you could remove the election down the road but it is not easy and you would be better off starting a new S-corp.

Outside of the "reasonable wage" and avoiding SE taxes there is a lot to this, you can shoot yourself in the foot pretty bad by making the wrong choice here.  Find a knowledgeable preparer and pay them for an hour of advice.  The recommendation will have to be based off your business, not another wholesaler, flipper, or buy and hold investor.

Thanks @John Woodrich .  I've been trying to get a meeting with him, but he didn't get back to me til earlier this week.  That is why it got sent in right now.

The problem with making a late S election is reasonable compensation, payroll returns etc. One provision of making the election is that you treated the business in that way for that time frame.

The problem is everything is already very late and the late filing fees are significant.

The other item I will say is what kind of investing are you doing?

I do not recommend late elections, things come with consequences. 

Its impossible to say there is a minimum or maximum.  Every tax situation is different. 

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