I have a Single Member LLC that transitioned to an S-Corp in 2019 with the same name and EIN. What do I need to do to file 2019 taxes?

[Michael314]

This is not a new business, the name and EIN are the same for the LLC and S-Corp. I assume that all the assets, deductions from the LLC would apply to the S-Corp as this is the same business, just re-classified as an S-Corp as of Jan 1, 2019.

Can I just file form 1120S and to get my K-1 and file my personal return?

Is there anything related to the Single Member LLC that would be missing? 

Thanks!

[ColeenD3]

Yes.

How to Change From an LLC to a Sub S Corp

• File Form 8832 with the IRS to have the company taxed as a corporation. ...
• Make changes necessary to meet S corp qualifications. ...
• File Form 2553 with the IRS to elect for S corp treatment. ...
• Submit a business entity conversion form to the same state agency that processes business entities, if available. 
• Effectuate a merger.

You will be required to obtain a new EIN if any of the following statements are true.

• You are subject to a bankruptcy proceeding.
• You incorporate.
• You take in partners and operate as a partnership.
• You purchase or inherit an existing business that you operate as a sole proprietorship.

For more information, please see these links.

LLC to S-Corp

LLC to S-Corp 2

[Carl]

You flat out can not use the same EIN for the S-Corp as you have for the single member LLC. You must obtain a completely new EIN for the S-Corp. You can get it for free in about 10 minutes at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-n...

Can I just file form 1120S and to get my K-1 and file my personal return?

Absolutely not. It's not that simple. Basically, you have to first show the closure of your SCH C business on your personal tax return. Then you can start the 1120-S to show the incorporation of the business. Overall I would highly recommend you get professional help for this year of change. Mistakes will $COST$ $YOU$ $DEARLY$ in the short term.

For starters, do not e-file ***ANY*** tax return, until you have completed ***ALL*** tax returns and are 100% satisfied with the results. Mistakes in the year of conversion *WILL* result in a never ending nightmare with the IRS from which you will never awaken.  So perfection here is not an option.... its a *must*.

First, you must report the single member LLC as permanently closed and disposed of on your personal tax return. you have to do this first, because you will need to print out the IRS Form 4562's for any assets in the business that will be transferred to the S-Corp. You will *NEED* both form 4562's. They both print in landscape format and one is titled "Depreciation & Amortization Report" and the other is "Alternative Minimum Tax (AMT) Report".  Here's how to report the closure/disposition of your SCH C business. No point in my going further until you have this done in it's entirety and you are physically holding the printouts of the 4562's in  your hand.

Closing your SCH C Business

At the beginning of the business section one of the screens has a selection on it for "I sold or otherwise disposed of this business in [tax year]. You must select that option and press on "as if" you still own the business.

WHen you get to the business summary screen, you have to work through income and expenses, even if those amounts are all zeros. Enter all income and expenses incurred before your official close date of the SCH C business.

Next, you must work through the Business Assets section, and if any assets are listed there you must show your disposition of each and every asset one at a time. Start working through the first asset and on the screen that ask, indicate that YES you DID STOP USING this asset in [tax year]. Then continue working the asset through to report it's disposition - be it sold, removed for personal use, given away, stolen, destroyed, whatever.

Note that you must show your disposition for each and every asset listed, individually.Since you are incorporating, you'll indicate that all assets were removed for personal use.

After you're finished with all the assets, if your business claimed ANY vehicle use at ANY time you were in business, then you will need to work through the business vehicle section to show the disposition of the vehicle - even if that vehicle was a personal vehicle not used 100% for the business. Most likely, your disposition of the vehicle would be "removed for personal use", becaase while not unheard of, it's rare that the sale or closure of a business reported on SCH C would include the vehicle in that sale or closure too.You most likely intend to keep using the vehicle for personal use, regardless of the disposition of the business.

Finally, if your business carry's inventory and you still have unsold inventory, then you must make your EOY inventory balance $0. To do that, on the COGS screen simply indicate that all remaining inventory was “removed from the business for personal use” and this will make your EOY Inventory balance $0.

Once you've completed all the above, just work it through to the end, and this will be the last year you file a SCH C for this specific business that you no longer have.

[Rick19744]

So to respond to your specific questions:

• I assume that you prepared and filed the appropriate forms to convert your LLC to an S corp
• If you did not have an EIN for your SMLLC (you used your SS#), then you should have applied for an EIN and used that when you filed your form 8832.
• If you previously had an EIN for your SMLLC (either because you wanted one or had payroll), then you do NOT need to apply for a new one.  You should have noted this on the form 8832 and the IRS will make the change internally.
• Have you received confirmation from the IRS that they have accepted your S election?
  • If you have not received confirmation, I would not file your tax return until then
  • Some states require this S election confirmation be included with the initial state return.  Check your state requirements.
• You data will not transfer.  You will need to input the information for the S corporation return.  This return will require TT Business (not home and business).  I have attached a link for this software.
• https://turbotax.intuit.com/small-business-taxes/
• Once you complete the business return, you will utilize the K-1 information to prepare your individual tax return.  Make sure you complete the business return prior to finalizing your individual tax return.
• Your individual tax return cannot be completed in the business software.  You will need to purchase separate software for you personal tax return
• When preparing your personal tax return, make sure you include the appropriate income and expenses for the time that you were a SMLLC.
• If you have any assets or inventory, you will need to eliminate these from your the Schedule C detail and then input those into the business software.
•  Make sure you understand the mechanics of S corporations.  You will need to maintain a basis schedule, pay yourself a salary, payroll tax filings, etc.  You may want to consult with a tax professional for the initial year to get started on the right path.

[Michael314]

Thanks so much for all the detail Carl! I have a few questions on what you said...

When closing the Sch C business, the instructions you gave are for Turbo Tax Self Employed, correct?? Or, in what version would those features be found?

Then, since I converted to S-Corp effective on Jan 1 2019, technically the last day of business on my Single Member LLC was Dec 31, 2018. So would that mean all that I would start a new tax return for 2019 and just list the assets disposed of as of Dec 31, 2018??

And for the 1120S (S-corp return and K-1), I would need Turbo Tax Business, correct?, 

And lastly, when all is said and done and I have the K-1, I'll go back to whatever version on TT personal software and file my personal returns, correct? Of course, waiting to e-file both the business and personal returns and do them at the same time, correct?

@Carl 

[Carl]

When closing the Sch C business, the instructions you gave are for Turbo Tax Self Employed, correct??

What I provided you in this thread are *NOT* step by step or click for click instructions. They are "GUIDANCE" on exactly what you need to do in order to close your SCH C business.

Then, since I converted to S-Corp effective on Jan 1 2019, technically the last day of business on my Single Member LLC was Dec 31, 2018.

If you did not follow the guidance I provided above on your 2018 tax return to close your business on Dec 31 of 2018, then as far as the IRS is concerned that business was still open as of Jan 1, 2019. 

So would that mean all that I would start a new tax return for 2019 and just list the assets disposed of as of Dec 31, 2018??

Only if you completely and correctly closed the business on your 2018 return. If you did not, then you have two choices.

1) Amend your 2018 tax return to show your SCH C business closed on Dec 31 2018.

2) Report the closure of your SCH C business on Jan 1, 2019 on your 2019 return. (If you take this option, then the incorporation date for your S-Corp *MUST* be Jan 2 2019 or after. )

And for the 1120S (S-corp return and K-1), I would need Turbo Tax Business, correct?,

Correct. For others reading this thread take note: TurboTax Business is not available as an online product, and is not available for MAC computers. It's for the Windows operating system *ONLY*.

And lastly, when all is said and done and I have the K-1, I'll go back to whatever version on TT personal software and file my personal returns, correct?

Correct. It is physically impossible for you to complete your personal return until you have the K-1 issued to you by the S-Corp.

Of course, waiting to e-file both the business and personal returns and do them at the same time, correct?

Yes. If you file one early, (such as the 1120-S) and then discover later there's a mistake, you then have to amend the 1120-S, issue a "corrected" K-1 and deal with that. Avoid these headaches and don't be in such a hurry. One point of interest note here though.

Your 1120-S corporate return is due to the IRS by March 15th, and not Apr 15th as your personal return is. The late filing penalty for a late corporate return is $200 per month, per owner. So with only one owner if you e-file on March 16th you'll have a $200 late filing penalty. So start early, take your time, and do your best to not go there.

[Michael314]

Hey Carl, thanks again for the insight here. 

Regarding the need for a new EIN... I was confused on this point. I found the following on the IRS website (I've highlighted my situation in red):

You will not be required to obtain a new EIN if any of the following statements are true.

• You report income tax as a branch or division of a corporation or other entity, and the LLC has no employees or excise tax liability.
• An existing partnership converts to an LLC classified as a partnership.
• The LLC name or location changes.
• An LLC that already has an EIN chooses to be taxed as a corporation or as an S corporation.
• A new LLC with one owner (single member LLC) is formed under state law, does not choose to be taxed as a corporation or S corporation, and has no employees or excise tax liability. NOTE: You may request an EIN for banking or state tax purposes, but an EIN is not required for federal tax purposes.

https://www.irs.gov/businesses/small-businesses-self-employed/do-you-need-a-new-ein

@Carl 

[Carl]

If your LLC has or had any W-2 employees in 2019, then you need a new EIN. Look, it only takes 10 minutes (if you type really, really slow) to get a new EIN online at the IRS website I mentioned previously. I would suggest you get a new EIN for the S-Corp, especially if you will be reporting closure of the SCH C business on your 2019 tax return. There is nothing that prohibits you from doing so. It helps the IRS 'keep the books straight". From the IRS perspective you've got a SCH C reporting the closure of the SCH C EIN, and you've got a 1120-S showing the same EIN as opened at the same time the SCH C business was opened. It is invariable that if by chance your 1040 or 1120-S is selected for human review, a human at the IRS will be confused by this and while they will be wrong, *YOU* are the one who has to deal with the headache of the audit. So avoid this possibility and get a new EIN for the S-Corp. Again, there's absolutely nothing that prohibits it.

During the time it took me to type this response, you could already have your new EIN.

I suspect the reason you want to keep the original EIN is because the bank where you have your business account at will not let you just "change the EIN" on the account. They want you to open an entirely new account. But the bottom line is, you're gonna do what you want regardless, since legally you can. It honestly doesn't matter to me one way or the other. It won't change the actions that you have to perform one bit, in order to close the SCH C business and open the S-Corp business.

[Anonymous_]

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@Michael314 wrote:
An LLC that already has an EIN chooses to be taxed as a corporation or as an S corporation.

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You do not need a new EIN when electing to be treated as an S corporation for federal tax purposes.

Did you file your Form 2553?

See https://www.irs.gov/instructions/i2553#idm139773154971392

[Rick19744]

And once again, I will repeat what I indicated in my earlier post .....and also reiterated by @Anonymous_ .

You DO NOT need to obtain a new EIN if you previously had one for the LLC.  The forms you submitted to the IRS to change your entity status and then elect S corporation status would have used this EIN.  The IRS will change their internal records accordingly.

It appears that you have already submitted the forms to effectuate the change.  If you now request a new EIN, this will cause you more problems and you will then have a letter writing quagmire with the IRS to explain what is going on.  

Your situation is nothing new to the IRS.  They have handled thousands of this type of change.

[Michael314]

Thank you for the help Rick! As for assets on the personal return for 2019, I would eliminate those from the  schedule C and input those on the business return, got it!

But far as carrying the amortized expenses (Research & Development and Start Up costs from prior years), how would I close those on the personal return? Do I need to mention them here, or should they simply go to the business return?

Since I have the same EIN, would the IRS recognize this as the same business expense that were previously reported on Sch C - personal return?

@Rick19744 

[Rick19744]

Same methodology applies the to R&D and Start-Up costs. 

You will need to enter the assets, R&D and Start-Up costs on the initial S corp return with the same basis, accumulated depreciation and recovery period; essentially a carryover basis.

Make sure you follow any specific instructions on the IRS acceptance letter.  Some states require this to be attached to the initial state return. 

I recommend attaching detail to the initial S corp return with a brief explanation of what occurred.  That way you are covered.  However, it is amazing the lack of detail IRS field agents have in the way of detail sometimes.

As long as you have submitted the appropriate forms, timely, and have the S corp acceptance letter you will be fine.

Even if you are audited, nothing to worry about as long as everything was carried over correctly.

[Michael314]

OK great, thank you again! But just to clarify on the personal return, Sch C - for the assets, R&D and Start-Up costs, do all of those actually need to be "closed off"? I wonder b/c the IRS acceptance letter acknowledges the changing of the tax status from Single Member LLC to S-Corp for 2019 (as the same business)... and this was issued in April in 2019. So "closing the business" doesn't seem logical, rather a carryover like you said.

And if I were to close off the R&D and Start-Up costs, how to I actually do that on the form? 

Maybe including a detailed explanation of all this is most important, like you said... do you agree?

Thank you!

@Rick19744 

[Rick19744]

Essentially what is happening here is that you are "closing" one entity type and moving it to a different entity type.  Additionally, the software program is a separate program for the S corp; TT Business.

There is no "final return" marking on the Schedule C.  You need to "close out" the assets in order to remove them from the individual tax software.  To do this, just show them as disposed with no gain or loss.  This justs eliminates them from the software.  Before you do this, make sure you print a detailed copy of the depreciation schedule so you can enter the assets and accumulated depreciation into the Business software program.  Same applies for the R&D and start-up costs.

[Michael314]

Just to clarify, the end goal here is to manipulate the Turbo Tax software so that the assets no longer show on the actual Personal forms. Correct? Or is it that we do in fact want to show the assets, and just have them at zero?

Likely they would be carried over within Turbo Tax on the previous year's Personal return from 2018 and still show. And if the only way to remove them is to dispose with no gain or loss, I understand from a standpoint of working with the Ttax software.

But at the end of the day, Turbo Tax aside, is it better to make sure the assets don't show on the 2019 Personal Return, and only show on the Business Return? Essentially avoiding any duplication between the Personal and Business return...?

Thanks again Rick!

@Rick19744