Opting into being a S-Corp

[Lexi9]

Hello!

I have a taxpayer who incorporated as an single-member LLC in April 2022 as a roofing company. Taxpayer did not anticipate to make over $100K in his first year and therefore, he did not submit form 2553 upon incorporating. Taxpayer was recently informed that he should opt in to be taxed as an S-Corp due to it tax savings benefits since he did make over $100k. Can taxpayer submit form 2553 now? If so, what reason will taxpayer need to include for reason he is filing form 2553,late? Thank you in advance

[Anonymous_]

See https://www.irs.gov/instructions/i2553#idm139855003794080

[Mike9241]

if it's concluded that a late S-Corp would be approved do not forget between now and the end of the year the active stockholder will need to take a reasonable salary. 

[Critter-3]

You can take a annual salary but filing the 4th quarter 941 and then the annual 940 along with any state forms required ... do some reading up on the payroll requirements.  

[Rick19744]

Not sure your relationship to the taxpayer, but this individual should not be making an entity decision choice simply based off whether their income level is over or under $100,000.

A few comments:

• If you have a SMLLC converting to a sole shareholder S corporation, this will not automatically save on taxes.  Someone needs to actually run the numbers.
• There needs to be a decision as to a reasonable salary paid to the shareholder.  Who is going to handle the payroll filing requirements.  There is a cost here.
• Fringe benefits need to be considered as most of these will be deemed compensation to the shareholder.
• S corporations are a focus of the IRS as they specifically look at the reasonable compensation issue.  This could be a cost if audited.
• There is a cost of an extra tax return, tracking of basis, etc.
• What is the impact of the qualified business income deduction (QBID) on the entity selection.
• I don't believe this decision should be made without having a one on one with a tax professional.