You might have thought about choosing S corporation status for your company if you run a small business. For federal tax purposes, a S corporation is a specific type of organization that passes through its income, losses, deductions, and credits to shareholders. The business and its owners may save a lot of money on taxes as a result. However, are you still able to choose S corporation status for the 2021 tax year? The answer is yes, but you need to be aware of certain conditions and timeframes.
You must submit Form 2553, Election by a Small Business Corporation, to the IRS in order to elect S corporation status for your company. The form must be submitted no later than two months and fifteen days following the start of the tax year in which the election would be effective. You must submit Form 2553 by March 15, 2021, if you want the election to be effective for the 2021 tax year. If you miss the deadline, you could still have some options, though.
If you file Form 2553 after the deadline, you may still be entitled to choose S corporation status if you can show that your late filing was due to a valid reason. A legal word used to describe events beyond of your control that prevented you from submitting on time is “reasonable cause.” Natural disasters, major illness, a death in the family, and IRS mistakes are a few examples of what constitutes a justifiable cause. The IRS might let you make a late election if you can prove that you had a valid reason for your late filing.
However, how can you determine whether your LLC is a S corporation? You might be unsure about your status as a S corporation if your company is a limited liability company (LLC). No, is the response. Although an LLC is a recognized legal entity under state law, the IRS does not recognize it for taxation reasons. An LLC is automatically taxed as a partnership if it has two or more owners or as a sole proprietorship if it has one owner. You must submit Form 2553 to the IRS and fulfill certain qualifying conditions in order to be taxed as a S corporation.
The name, address, and employer identification number (EIN) of your company must be included on Form 2553 if you want to file one. The start date of the S company election as well as the names and addresses of each shareholder must also be specified. After filling out the form, you must mail it to the IRS after signing and dating it.
Finally, why is Form 8832 required for an LLC? The entity classification election on Form 8832, which is used to choose how an LLC will be taxed under federal tax law. An LLC is automatically taxed as a partnership if it has two or more owners or as a sole proprietorship if it has one owner. An LLC can choose to be taxed as a corporation, including a S corporation, albeit this is a choice. The business and its owners may save a lot of money on taxes as a result. To make sure that your LLC is treated as a corporation for tax reasons, you should think about filing Form 8832 if you’re thinking about filing Form 2553 to opt S corporation status for your LLC.
In conclusion, you may still choose to have your company be a S corporation in 2021, but you must file Form 2553 by the deadline of March 15 or show good cause for your late filing. You must submit Form 8832 if you run your business as an LLC in order to choose how it will be taxed for federal tax reasons. By taking advantage of these tax-saving opportunities, you may support the expansion and success of your company in the coming years.
Because S corporations are exempt from self-employment taxes on the company’s profits, they often pay less taxes than LLCs. An S corporation’s revenues and losses are instead distributed to its shareholders and recorded on their personal tax returns. To find out which business structure is ideal for your particular scenario, it is always better to consult a tax expert because the tax consequences for each business structure can vary depending on a number of different circumstances.