How to Change LLC to S Corp Tax Status || tutorial of IRS form 2553 to elect s corp status

hey this is attorney elizabeth potts weinstein and today we're going to be talking about how to make your llc be taxed as an s corporation so if you have a llc or limited liability company for your business the default is that it is taxed just as if you were a sole proprietorship if there's only one owner or it's taxed as a partnership if there are multiple owners but you may want it to be taxed as an s corporation instead for the various tax benefits that exist for us corporations now before you make the election with the irs to turn your llc into something that is taxed like an s corporation you have to have your llc it has to already be formed and you have to already have gotten your ein from the irs i have videos about both those things and you can see the links for that below the deadline to elect to have your llc be taxed as an s corporation is two months and 15 days after the tax year starts where you want it to count now that calculation if you just formed your llc yesterday it's two months and 15 days from yesterday when you form the llc even though it's the middle of the year right now but if you want your llc to be taxed as an s corporation next year you can either file it now you can file it ahead of time and say you want it effective as of january 1st or you can file it in the first two months and 15 days of next year and have it be effective for that next year what if it's too late for you what if it's way past two months and 15 days when you want this to be effective there is a way to still get that s corp election for your llc for either this year or even prior years but it has very specific rules and things that you have to do so we're going to talk about that but it'll be more at the end of the video because i want to show you exactly in the form where you're going to do that so to have your llc be taxed as an s corp you have to file a form with the irs this is a not an online form sadly it is a pdf that you're going to fill out and print and sign and you're either going to fax it to them or you're going to mail it to them so let's go ahead and look at the various irs website pages which i will also have linked below that apply to this and also the pdf so the first thing you want to do before you make this election is make sure that you actually are allowed to do it there's a bunch of different qualifications most of which are probably true for you it has to be domestic so it can't be a corporation formed in another country it can only have allowable shareholders or owners of this business so it can be individuals it can be certain kinds of trusts like if you have a revocable living trust that owns your business and it has to be people who are either u.s citizens or residents like green card residents this is the thing that tends to trip up my clients is one of the owners is not a u.s citizen and doesn't live here they don't have a green card they're in another country you cannot be an s corporation either analysis texas s corporation or corporation tax a census corporation you also have to have no more than 100 shareholders most of my clients this isn't isn't an issue for them but sometimes people will have outside investors and things like that and this will come up the other big thing that comes up is you can only have one class of stock so sometimes when people get outside investors and they're passive investors or they want their money first or whatever they'll set up different classes of stock they'll have preferred stock they get paid up first because they're preferred et cetera you can't do this and be an s corp that's c corp land so assuming that you meet all the different qualifications then let's go look at the form that you're going to need to fill out it's form two five five three election by a small business corporation and this is the same form if you're a corporation that wants to elect to be an s corp or if you're an llc that wants to be elected as an escort i'm gonna link to the main page on the irs.gov website that has these forms but since links may change all you have to do is go to the irs's website and search for form 2553 and then you'll see that the links come up there just in case these links change in the future so there's a form which is a pdf that you're going to fill out and then there are instructions for it i recommend that you pull up the instructions and have them handy because you're going to need that information later let's go ahead and look at form 553 the first page tells you where you file so in half of the states you're filing it in kansas city missouri and the other half of the states you're filing it in utah but they also have fax numbers which are two different fax numbers depending upon where you're located it's probably a good idea to fax it in instead of mailing it because if you mail it who knows the post office is going to lose it and then also it'll take longer and i actually think they process that slower because someone has to literally open up the envelope and everything during the 2020 2021 situation the irs had literally like truckload tractor trailers full of mail that was unopened so faxing will avoid that kind of a problem i don't know how much faster it will be because they're very very very behind but probably faster than the mail so next let's actually look at form 553 some of the beginning parts are fairly simple you're going to put the name of the llc so pots weinstein financial consulting llc is my made up names for today you're gonna put the ein which you need to have already gotten so one two three four five six seven eight nine i can't remember how many numbers it is all right the number street and room or suite number the date incorporated which is the date you formed this thing so let's say we formed it um 5 1 20 22 just as a random date um san francisco california 133 day state of incorporation so let's say you formed it in california check the applicable boxes if the corporate entity after applying for ein changed its name or address so if i made this business as of may 1st and right now i'm recording this on may 6. i haven't changed the name of our address but if it's been a while you might have done that since you formed the ein so that's one of the things you would check there election is to be effective for tax year beginning month day year so if you want it to be effective on the day you formed your llc then you would put that date here zero five zero one twenty twenty two but let's say it's here in 2022 in may 2022 and you want it to be effective for the tax year 2023 so you'd put january 1st 2023. it's that straightforward just to figure out which year you want to count and if it's you started your business in the middle of the year it's the middle of the year otherwise it's usually going to be january 1st speaking of tax years section f is about what tax year are you going to be using so most businesses especially most small businesses have a tax year that's the calendar year january 1st through december 31st but occasionally it makes sense to not have that be your tax year so let's say you're a business that you're you sell on ebay and you know 90 of your revenue happens around the holidays around you know december november kind of time frame it may not make sense to have your tax year end december 31st because then you're gonna have like returns coming back and you're still going to be shipping things that are late for the holidays like it will just be a big mess and you don't have time to deal with closing at the end of the year so it can make sense for seasonal businesses like that especially ones that are kind of december big sale businesses to shift their tax year to be a different set of months you know so it could be uh september through august or something if you're going to do this you need to have to tell the irs obviously so let's say you're going to have your tax share be some other year then you would state that here and you would you later on are going to have some other things too but most of you are just going to pick calendar year now this part g says applies to people of more than 100 shareholders where you can have if people are members of family that there's married a couple or something and they if you count them all as being kind of one person and it's under a hundred you probably have one or two or three owners for this corporation or for this llc so it's probably not an issue for you name and title of officer or legal representative of the irs may call for more information and that telephone number so if you're filling this out yourself you're gonna put your own name and then the title of that you have for your llc so i'm just going to say member that's a generic title for anyone who owns an llc but maybe you're the manager maybe the president maybe the ceo like whatever title you're using phone number this part i is about the late election and we're going to talk about that later then you're signing this under penalty of perjury your signature your title and then the date this signature you do not want to be an ae signature okay using adobe acrobat or using whatever e signature form you want to actually print this out and sign with a wet pen it used to be that they kind of relaxed days ago about e-signatures but lately they've been rejecting things that were not signed with a wet pen so sign it with a pen if it's a blue pen that's even better because it makes it look more real all right page two this is where the owners of this business agree to be an escort and so the idea is when you're signing on this first page you're signing as the president like or the manager or whatever the member you don't necessarily have to be an owner to sign that because you could just be running the business and not actually own it here the owners all have to sign and all of them have to sign so first you're going to put your name and then you're going to put this is a made up address you're going to put your name and your address and everything and then you're going to have your your signature as the owner and the date that you sign it and i'm going to talk about the shareholders consent statement the number of shares or percentage of ownership i use it usually do this as a percent because that is easier to communicate to the irs so if i'm the only owner i own one hundred percent this two and you own fifty fifty fifty fifty date equi acquired if you just form this business then it's gonna be the day you set up the business most likely unless you bought it the your social security number and then your tax year end date so if you just do normal regular taxes where it's a calendar year then it's 12 31 but even individuals can have a tax year that's different and sometimes if all of your income comes in through this business you want the tax year to match up otherwise it'll be a big mess so something to be aware of if you decide to have a different tax year and then you're going to sign here and date it so here's what you're agreeing to the under penalty of perjury that you consent to this election and you've read all this different stuff and that it has all the relevant facts and everything is true correct and complete your consent is binding and may not be withdrawn and if you're seeking really for a late file election which we're going to talk about in a minute then you declare independent surgery that you have reported your income on all effective tax returns on your personal tax returns as if it was a s corporation already so let's say it's here in 2022 and you actually thought you did this and you didn't and so you filed your taxes your businesses taxes and your personal taxes for 2021 already and you acted it as if it was an s corporation and then the you now realize that you never did this form and now you're going back to fix it probably the irs would have told you once you filed your tax work but sometimes they might have gotten to it yet so as soon as you realize you go ahead and file this and the idea is you acted as if it was true already so that's going to be part of what goes into the cons into being able to receive it also here you're going to put the name of the llc and the ein again just on every single paper part two isn't isn't going to apply to most of you this is if you wanted a tax year that's not the calendar year so you're going to talk about you're adopting a new tax year you're changing it you've decided it's a different tax year that makes sense for your business and that you have a purpose et cetera so this only applies to you if you're selecting a different tax year and if you're going to select a different tax share you probably do want to talk to a accountant or tax preparer about what exactly tax year makes sense for your particular business and what the advantages and disadvantages are part three is if you're a qualified sub chapter s trust q s sst like that's not going to apply to almost everybody so i wouldn't worry about this and if you are that then you need to go talk to somebody about that the last part gives you the information about getting this late qualification if you've missed the two months and 15 days there's certain things you have to state way back up here on the first page under penalty of perjury that first they have to actually be true because you're stating a penalty perjury and then you have to state them here to be able to get this late election i've always had it be granted if if you say the right stuff then and it's actually true then they'll grant it so let's look at the instructions to determine what the things are that you need to say so if you look at the instructions for form 2553 you're going to be doing since you're an llc that wants to be taxed as an s corp you are a entity eligible to elect to be treated as a corporation and so if you're late you want that release let's click on that it goes us down to the place that has all the information we need so in this section you're going to type the stuff that you have to agree to so you're going to say that you're an eligible entity that you intended to be cl classified as of the date on line e and the date on line e is that date you picked for it to be effective that it was filed within three years and 75 days of that date so obviously that has to be true that the only reason you failed to qualify is because it wasn't timely filed that pretty much says the exact same thing which i don't know why they has to two different lines then the entity either either hasn't had to file taxes yet because the taxes aren't due or if it did if taxes were due it filed the escort tax return because as corporations have to file separate tax returns they don't pay taxes directly to the federal government but they have to file a tax return and then a k-1 gets is given to the owners and that money gets put on their personal tax return and then they pay taxes and then you have reasonable cause for your failure and acted diligently to correct the mistake you pretty much just say you have reasonable cause for the failure and have diligently attempted to um correct the mistake and all the shareholders also testify to this and agree and so if all that is true then you can get the late relief and so far i've always had that granted typically we're not applying you know two years later we're we just missed the two months and 15 days because it's three months or so yes it's something really short or four months and typically what happens is my client was planning on have their llc be taxed at sole prop and then they talk to their accountant they're like oh no we need to have a tax on the next corp and that's why we're making the election a little bit late but it's not like really actually late in the sense of years late and as i said before you're going to either mail this or fax it i think it's a good idea to go ahead and fax it by the way you can get their late relief when you're filing your tax return so let's say you you meant to do that this year in 2022 and you totally haven't done this and it is february of 2023 and you want to file your tax return for 2022 and get this s corp thing you could enclose it with your tax return that's typically what is done at that point instead of sending it separately because i think that ends up being more confusing for the irs but so where we're assuming you're not sending this with your tax return you're sending it separately and so you'd mail it or fax it to the appropriate address depending upon what state you're in now they're supposed to determine on the election in 60 days it used to be that they would do that but in the last couple years they haven't they're very very far behind they haven't really stated what you're supposed to do because they're they state oh if it hasn't been done in 60 days then you know you're supposed to call us etc there is a specific phone number here in the instructions 1-800-829-4933 that you can call if you haven't gotten a response i have not had to try to do that to actually see if someone answers that number and if you can get a response i think it's much more likely that if you fax it you'll get a response quicker because my concern is that if you mail it your envelope is sitting in some big giant pile of mail that hasn't been un opened and they can't even tell you anything about it because it's not in the files yet so if you do fax it you're going to keep the original and keep it in your files if you mail it make a copy first before you mail it that way you know that it was sent if you are not going to fax it if you're going to mail it and you want to make sure that you have some kind of receipt you have to send it either certified or registered mail certified rigid is cheaper than registered mail so that's most likely what you do or you can also send it with a designated private delivery service which a designated private delivery service means fedex ups and dhl so you can use one of those services and uh you'll get information from them too again this is attorney elizabeth potts weinstein this video was made a per special request of some of my patreon supporters so if you would like to have a video made to answer your specific questions you are having with your business you can become a patreon supporter by clicking on the link below and support the channel and get your specific video requests made if you found this video helpful hit the thumbs up button if you have any questions about what we've talked about today feel free to ask them below and i'll try to point you in the right direction and of course subscribe if you would like to get more videos like this thanks a lot for watching bye

Channel: Elizabeth Potts Weinstein

Views: 12,662

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Id: -CXGILTIGmI

Length: 19min 19sec (1159 seconds)

Published: Tue May 10 2022