Are you stressed because you forgot to file an S-Corp election for your business? Don’t.
In today’s post, I’ll walk you through how to file a late S-Corporation election. I’ll also share with you my top-secret reasonable cause for filing late that has never been rejected by the IRS.
If you’re already incorporated, there are several reasons why you might want to file for an S-Corp election to obtain S-Corporation status. The biggest advantage to having S-Corp status is that your business will no longer pay corporate taxes on all of the income it generates. Instead, some of that income will be distributed to the owner(s) (that’s you!) and taxed on your individual income tax return.
This is called pass-through taxation, and it allows you to only pay self-employment taxes on the salary your business pays you rather than pay those taxes on the total amount of profit your business brings in. In other words: You can save big money!
If you’re not sure if your business can or should file an S-Corp election, make sure you read my complete guide to the advantages and disadvantages of owning an S-Corporation.
To be considered on time by the IRS, your S-Corp election needs to be filed prior to 2 months and 15 days after the beginning of your business’ fiscal year or prior to 2 months and 15 days after the date your business became incorporated (if newly incorporated).
The great news is that you have up to 3 years and 75 days from the date you intended to elect to become an S-Corp to get your S-Corp election paperwork to the IRS!
You’ll file for a late S-Corporation election the same way you would if you were filing on time, but there are some extra steps you’ll need to take. Here’s the process:
Basically, the IRS says that if you have been operating like an S-Corporation anyway but just forgot to file the paperwork that would make you an “official” S-Corporation, they’re likely going to let you slide. It is important that your business has reported and filed all income tax returns with the IRS since the time you should have elected to become an S-Corporation.
Now, let’s get to the top-secret reasonable cause example that I’m sharing with you today. Here’s the reason that has never been rejected by the IRS (drumroll, please): “The information necessary to make an informed decision about the entity’s status was not available in time to file a timely election.” If you write that on line I of your Form 2553, you should be good to go as long as you’ve completed all other necessary steps for becoming an S-Corporation.
You should be notified within 60 days whether or not your late S-Corp election was accepted. However, if you checked the Q1 box in Part II of the Form 2553 to indicate you’re requesting a fiscal tax year based on a business purpose, then your determination may take an extra 90 days. If you haven’t heard anything and you think you should have, then contact the IRS.
When your late S-Corp election is accepted, the notification will also include the effective date.
You do not have to file for an S-Corp status more than once for the same business unless you terminate your S-Corp status or the IRS revokes your status for some reason. In other words, there’s no expiration or end date given for an S-Corp status.
I’ve written a complete guide that includes a list of what you’ll need to become an S-Corp. If you have more questions about how to get started and would like some expert advice, feel free to contact me. Make sure you look through my other posts for S-Corporation owners that I’ve written to help my small business clients like you.