Late S-Corp election retroactive to 1/1/2023 approved, how to handle 1099

[SuperstarWI]

Hello,

I recently received approval from the IRS to have my single-member LLC file as an S-Corp and they approved the effective date as of 1/1/2023.  However, all year I have been an independent agent receiving commissions to me individually and I assume I will be receiving a lot of 1099s in early next year as I have for all the years I have been an insurance agent.  Normally I have filed as a sole-pro LLC disregarded entity generating a Schedule C for all my 1099 income.  However, now that I will be treated as an S-Corp retroactively to 1/1/2023, what will I do with all the 1099s sent my way for money earned this year?  I have begun the process of sending new w9 forms to all my payors to attribute payments to my LLC and its EIN, but they all say it is not retroactive.

I have heard a couple of options- one is just still file a Schedule C and those 1099s for this year and they will be treated as SE as usual.  However, I do also have to set up a payroll now for w2 wages as part of the s-corp requirement so will I be w2 for only part of the year even though the s corp election is retroactive to 1/1?

I guess I am confused as to how to handle this right now in terms of the payroll and the 2023 w2 I will have to generate as well as how this will be handled at tax time.  I read somewhere there may be a way to 'nominate' the 1099 income I received to my LLC and then roll everything under the LLC EIN even if I receive 1099s to my SSN.  Is this possible? Suggestions?

[Critter-3 · Accepted solution]

Simple is always beter ... the S-Corp election was approved for the start of the year so all your business income and expenses should be on the 1120-S.   You need to let everyone know that you are now a corp for the entire year  and give them a new W-9 form indicating this so IF  they do issue a 1099 it goes to the corp and not you personally. (FYI a 1099 is not required to be issued to an S-Corp however some will issue one anyway) 

IF  you do get a 1099 issued to the SS# and the issuer will not correct it  then simply put the income on the Sch C like you did in the past  then do an expense of the same amount to negate the income that you will report on the 120-S.

)

As for payroll ... the IRS acceptance notice tells you exactly which forms you need to file an when which includes the payroll forms 940 & 941 ... payroll should start this quarter (third) filed in October. 

[SuperstarWI]

Thank you for the reply. Alright, assuming I proceed with that strategy, how to I proceed with the W-2 issue at the end of the year?  Do I manually generate a W-2 reflecting the income year-to-date and then a separate w-2 from my new payroll provider going forward?  What about the tax filings?  Since the S-corp election goes back to 1/1/2023 but I am now just starting a payroll do I have to file late tax reports or can I count the estimated tax payments made during the year?

[Mike9241]

since all the income for the year is to be reported by the S-Corp, your compensation must be reasonable based on the services you performed for the S-Corp for the entire year. Reasonable is not specifically defined in the tax laws but rather as the various results from court findings.  since this is your first year as an S-Corp it's advisable to confer with a tax pro who can give you guidance in this matter as well as tips about things you may be overlooking. For example, do you have health insurance that you use to take as Self-employed health insurance deduction.  That's a lot more complicated with an S-Corp and if you don't follow the rules neither the S-Corp nor you get a deduction. Personal use of company vehicle and thing that has to be handled differently.  

I do think you need to file 941s for the first two quarters which may result in penalties for late filing. discuss this with the tax pro. 

[Critter-3]

I HIGHLY recommend you seek some professional guidance on the subject of being an S-Corp and the rules you need to follow especially in regards to reasonable payroll and when/how to file the payroll tax reports timely.