By submitting Form 2553 to the IRS, you can elect S corp status retrospectively. But there are particular conditions that must be fulfilled. Prior to three years and seventy-five days after the commencement of the tax year for which the election is valid, a request for retroactive S corp status must be made. The company also has to have already satisfied the S corp qualifying standards for that tax year.
If a sole proprietor meets the conditions, they may choose S corp status. This involves having just one class of stock, no more than 100 stockholders, and only persons, estates, or specific trusts as shareholders. Additionally, the company must be a domestic corporation without any stockholders that are ineligible, such as non-resident aliens or companies. How late can you submit a S Corporation election?
For the tax year when the election is in effect, the application for S corp status must be submitted by March 15th. However, if specific requirements are met, the IRS permits a late election. If a company misses the deadline, they still have until two months and fifteen days after the beginning of the tax year they want the election to apply to to file Form 2553. Additionally, if the failure to file was for a valid reason and not on purpose, the IRS may offer relief for a late S corp election. Can I Still Choose S-Corp Status for 2020? If you complete the prerequisites and submit Form 2553 by the due date, then you may still choose S corp status for 2020. Remember that the deadline for 2020 was March 15, 2020, however as was already established, the IRS permits a late election.
The fine for submitting a S corp election after the deadline is $195 per shareholder, per month, up to a maximum of 12 months. If the failure to file was due to a valid reason and was not done on purpose, the penalty may be waived. Additionally, if it is in the corporation’s and its shareholders’ best interests, the IRS may offer relief for a late election.
In conclusion, it is feasible to retrospectively elect S corp status, but you must do so within the allotted time frame and you have to be eligible. If a sole proprietor meets the conditions, they may choose S corp status. The IRS permits a late election provided certain requirements are met, but the deadline to apply for S corp status is March 15th. $195 per shareholder, per month, is the fine for submitting a S corp election after the deadline; however, if there was a justifiable basis for the delay, the fine may be waived.
A late S-Corp election may have a number of legitimate reasons, such as the inability to timely submit Form 2553 owing to an administrative error, reliance on wrong tax advice, or a delay brought on by the death or incapacity of a shareholder. If there is a good reason and the corporation acted in good faith, the IRS may take into account giving relief for late S-Corp elections.