S Election for LLC


B

bc

I form a single member LLC in March. In July, I decide I
want it to be taxed as an S corporation. Obviously, I could
form another LLC, take up operations under the new LLC and
file an election.

However, I need to use the existing entity. If I file the S
election July 1, can I make it effective July 1 under the
theory I am electing to be taxed as an association, and
therefore am starting a new tax year, anyway? Or am I stuck
with it being effective Jan. 1, 2006 as it is more than 75
days since the start of the tax year for the SMLLC?

If Jan. 1, can I avoid the issue by forming a subsidiary
SMLLC owned by the existing LLC and having the new LLC file
a Form 2553?
 
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T

Thomas Healy

bc said:
I form a single member LLC in March. In July, I decide I
want it to be taxed as an S corporation. Obviously, I could
form another LLC, take up operations under the new LLC and
file an election.

However, I need to use the existing entity. If I file the S
election July 1, can I make it effective July 1 under the
theory I am electing to be taxed as an association, and
therefore am starting a new tax year, anyway? Or am I stuck
with it being effective Jan. 1, 2006 as it is more than 75
days since the start of the tax year for the SMLLC?

If Jan. 1, can I avoid the issue by forming a subsidiary
SMLLC owned by the existing LLC and having the new LLC file
a Form 2553?
This is a two-step process: first file the entity election
on form 8832; that creates the corporation. You can do that
up to 75 days after you want it to happen. Then file Form
2553 with the same effective date to elect S status. You are
in fact starting a new year for tax purposes.

I did this for a client some years ago; a partnership on the
cash basis that received a lot of up-front money in December
for services to be rendered the next year. We formed the
corporation, and elected accrual accounting for it, so that
the revenue matched the subsequent expenses.
 
H

Harlan Lunsford

This is a two-step process: first file the entity election
on form 8832; that creates the corporation. You can do that
up to 75 days after you want it to happen. Then file Form
2553 with the same effective date to elect S status. You are
in fact starting a new year for tax purposes.

I did this for a client some years ago; a partnership on the
cash basis that received a lot of up-front money in December
for services to be rendered the next year. We formed the
corporation, and elected accrual accounting for it, so that
the revenue matched the subsequent expenses.
Yes, it is a two step process, and what's more, the 8832 may
be filed as late as the due date for the corporate return
(caveat: NOT including extensions!!), usually March 15 for
most folks. However the S corp election must be filed
within the first 75 days of the year. Which is too late for
this year.

But there are provisions for a late election. Best to get
some local competent tax help, either an Enrolled Agent (EA)
or CPA.

ChEAr$,
Harlan Lunsford, EA n LA
 
B

bc

This is a two-step process: first file the entity election
on form 8832; that creates the corporation. You can do that
up to 75 days after you want it to happen. Then file Form
2553 with the same effective date to elect S status. You are
in fact starting a new year for tax purposes.
My understanding is the Service now considers filing a 2553
to be an election on the 8832. Are you stating the 8832
should be filed in this case to start the new fiscal year?
 
H

Harlan Lunsford

My understanding is the Service now considers filing a 2553
to be an election on the 8832. Are you stating the 8832
should be filed in this case to start the new fiscal year?
That can also be done as I just found out yesterday. see
Rev Proc 2004-48 for details on how to do it ex post facto.

ChEAr$,
Harlan Lunsford, EA n LA
 
T

Thomas Healy

This is a two-step process: first file the entity election
My understanding is the Service now considers filing a 2553
to be an election on the 8832. Are you stating the 8832
should be filed in this case to start the new fiscal year?
They do. If you didn't file the 8832 in timely fashion, the
2553 is deemed to be an entity classification election with
the same effective date as the S election . Either way
starts a new fiscal year.
 
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D

David Woods, EA, ChFC, CLU

This is a two-step process: first file the entity election
on form 8832; that creates the corporation. You can do that
up to 75 days after you want it to happen. Then file Form
2553 with the same effective date to elect S status. You are
in fact starting a new year for tax purposes.

I did this for a client some years ago; a partnership on the
cash basis that received a lot of up-front money in December
for services to be rendered the next year. We formed the
corporation, and elected accrual accounting for it, so that
the revenue matched the subsequent expenses.
Little behind the times, Tom. This can all be done by just
filing the 2553.
 

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