Level 3

Question

Late S-Corp Election

Forum|Forum|9 months ago
October 1, 2025
3 replies
6 views

Has anyone done a late S-Corp election in order to supersede a more recent S-Corp election?

New client to me (small construction business - Sched C) always self prepared his taxes. He filed for S-Corp election on his own and obtained effective start date of 01/01/2025.

I'm working on his 2024 and he definitely could benefit from making a late election effective 01/01/2024. Potential savings of $18K+. My research does not give me conclusive results on whether I can make a late election even after having received a newer effective date.

Thanks

sjrcpa

Level 15

What would the reason for late election be?

The more I know the more I don’t know.

IRonMaN

Level 15

"What would the reason for late election be?"

"We are thinking we could have saved some taxes so please accept this election a year early" 😀

Slava Ukraini!

F

FranckAuthor

Level 3

That's funny!

BobKamman

Level 15

You can't elect S Corp for a Schedule C sole proprietorship. Did he also incorporate, following state procedures? When?

F

FranckAuthor

Level 3

He is an LLC (disregarded) and since 2022, hence the Schedule C. Since he self-prepared his taxes, he did not know that he could make a late election for the prior year. He paid $15K in self-employment tax in 2023. Hopefully that helps.

Thanks for the help

T

TaxGuyBill

Level 15

@Franck wrote:

he did not know that he could make a late election for the prior year.

Does he qualify for a late election?

Are you saying he had not intended to be taxed as a corporation in 2024?

Would the 1120-S be timely filed?

https://www.irs.gov/instructions/i2553#idm139855003360128

qbteachmt

Level 15

"He paid $15K in self-employment tax in 2023"

What tax savings would this be? He still owes FICA, but now he will owe both Employer and Employee share. Plus, he didn't do payroll, and he would need to do payroll as an S Corp. Then, of course, there are the other things he is late on, so penalties and interest tend to apply.

As a Schedule C filer, he gets half of the SE tax as a business deduction, but it happens as an adjusted calculation. As an S Corp, he gets half of the FICA as a business deduction.

Where's that savings coming from?

Don't yell at us; we're volunteers

BobKamman

Level 15

If he made $100K in Schedule C income, he could easily pay himself $60K wages and take $40K in dividends from an S Corp. That would save him about $6,000 in SE Taxes. How do you know he's not already doing payroll for employees? But he can find someone to do quarterlies with one paycheck each period for, let's say, 10% of the savings or $600.

Others would walk closer to the edge and pay $30K in wages with $70K in dividends. IRS is giving up audits until 2029, but if this business has gross revenue of $1 million, it's a lot bigger target on Schedule C than it is on Form 1120-S.

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FranckAuthor

Level 3

Thanks guys. Client decided to keep the S-Corp start as of 01/01/2025 ans pay the 2024 SE tax.

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