S Corp Taxes -When to Elect

S Corp Taxes

Q: If I change to an S corp half way through the year do I still benefit or is it best to convert to an S corp at the beginning of the year?


A: “I can’t tell from your question if you’re thinking about electing S corp taxes for your existing business entity or possibly for a new entity, so I’ll address both.

Actually, when you convert to an S Corporation the election is made effective for the entire tax year. To benefit from S corp taxes, you must elect in a timely manner.  The S Corporation election is actually due by the 15th day of the third month of your tax year. So if your tax year is the calendar year and ends in December (most likely) then the election to convert to an S Corporation would be due by March 15. Once the election is made you will be treated as an S Corporation and pay S corp taxes for the entire year.

Now, since March 15 has passed for this year, all is not lost if you have not already made the election for this year. There is a limited set of circumstances that would allow you to still convert to an S Corporation this year even though the filing deadline has passed.

My advice would be to first determine if the S corp taxes are best suited for your particular situation, and if it’s the only strategy that you should be utilizing (a Certified Tax Coach can help you with this). Once you know that it would make sense to still convert to an S Corp this year, we would definitely look to see if you meet the requirements to file the late election. Waiting another year to make the election will only increase the amount of money you are wasting this year on non S corp taxes by not putting this strategy into place.

Also make sure you get some help on setting up the payroll for yourself. Not only is the owner’s compensation in an S Corporation the place that I see many people mismanaging this strategy, it is also the area the IRS is looking into to make sure people are not abusing the system. So you need to make sure you are paying yourself the correct amount as the owner so you can 1) fly under the IRS radar and 2) maximize your savings using this technique!”

Answered by Eric Levenhagen, CPA CTC


More answers. . . .

A: “I can’t tell from your question if you’re thinking about electing S corp status for your existing business entity or possibly for a new entity, so I’ll address both.

If you want to elect S corp taxes and status for your existing single member LLC (yes an SMLLC can electo to be treated as an S corporation) or C Corporation, that election must be made by March 15th of the year it becomes effective and the effective date is retro active to January 1st of that year. Unfortunately, that time has passed. Your state may also require a separate S election and those due dates may be different. In New Jersey, the due date is April 15th. It is possible to file a late S election if you meet certain exceptions.

If you’re thinking of forming a new entity and electing S status you have 75 days from the formation date.

The real question is have you considered all of the advantages and possibly disadvantges of the different types of entities available to you under your specific facts and circumstances. I’d strongly recommend investing in a comprehensive tax plan which should encompass more than entity selection and return a multiple of yur investment in tax savings.

To answer your specific question, if an S corporation makes sense and will save you money, why wait? Partial savings is better than none at all. The election is made once, so you’ll continue to be an S Corp into the next full calendar year.”

Please feel free to visit www.certifiedtaxcoach.com and my own website www.NJCPA.pro for additional information and resources.

Answered by Ron D’Arminio, CPA CTC


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**The answers provided to submitted questions are intended to serve solely as discussion on various tax topics, with the understanding that the publisher and the expert/author are not engaged in rendering legal, accounting, or other professional service and that they are not offering such advice in their responses. They do not constitute legal advice nor are they a substitute for legal counsel. All questions may not be answered.

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