Urgent - LLC to be taxed as a S Corp

[Arthur C.]

Hello BP Community,

I have an important tax related question that I need someone to help answer. I have created my LLC back in July 2018 and started my first flip in August 2018. I actually had 2 months and 15 days to elect my LLC to be taxed as a S Corp after I created my LLC. However, I unfortunately did not elect as a S Corp in a timely manner.

My first flip is subject for closing on the last week of December and I am starting to wonder if it makes sense to delay the closing till 2019 so that I can be eligible to elect my LLC as a S Corp between Jan 1 - March 15.

However, my big question is...

Can the profits from my first flip still get taxed as S Corp (only on the partial portion of profits I draw as my salary not the distribution I take) even if the project actually started before I elect my LLC as a S Corp but do the closing , say on Jan 2, 2019, which is after the date of my election to tax my LLC as a S Corp?

If you could tag a good CPA that could give an answer shortly, I would greatly appreciate it very much!

Wish you and your family Happy Holidays!

Warm regards,

AC

[Brandon Hall]

You have three years and 75 days to make a retroactive S-Corp election under Rev Proc 2013-30. 

This means that, as long as your flip is owned by the LLC you can sell it this year and retroactively tax your LLC as an S-Corp.

The tricky part is running late payroll. Penalties can stack up pretty quickly, so if you do decide to go the S-Corp route, I would recommend moving forward with the election sooner rather than later and completing your 2018 payroll asap.

That said, if you have flexibility to push closing, you should explore that. Then in 2019 you'll have more profits to shelter (assuming you do another flip) which will make the S-Corp that much more valuable. There are cons of course, namely pushing income into one year could increase your mariginal tax and also reduce your ability to obtain financing since your 2018 tax return won't show this profit.

I'd say you should speak with a CPA but it's too late in the year to have a good one assist with this, legitimately, under your time crunch.