Can I Convert My LLC to an S-Corp When Filing My Tax Return?
Are you considering changing your LLC to an S-Corp for tax purposes but unsure where to start? We're here to help you navigate the process. Read our guide to learn how to change an LLC to an S-Corp for tax treatment, the IRS criteria you must meet to make the switch, and how to complete and file the necessary forms.
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Key Takeaways
- To qualify as an S corporation, your company must meet the qualifying criteria, including that it has fewer than 100 owners and is a domestic company organized under the laws of one of the 50 states with no nonresident alien members.
- File Form 2553 to tell the IRS that you want your LLC taxed as an S corporation.
- Form 2553 generally must be filed within two months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year before the tax year it’s to take effect.
- All members of your LLC must consent to the election at the time of filing Form 2553 and sign the form.
LLC to S-Corp
Converting your LLC to an S-Corp for tax purposes when filing your tax return is not the normal process, but it is possible under certain circumstances. If you qualify for this type of conversion, you can submit the necessary documents along with your tax return.
In some situations, your election to be taxed as an S-Corp might not be effective until the following tax year, so the rest of your tax return should reflect this fact if it applies. Also, filing with the IRS for treatment as an S-Corp does not change the fact that your business remains an LLC for all other purposes.
S-Corp qualifications
Before taking any action towards electing for S-Corp tax treatment by the IRS, the first step is to be sure your company can meet the S-Corp qualifying criteria.
An S-Corp must have fewer than 100 owners. It must be a domestic company organized under the laws of one of the 50 states with no nonresident alien members, and none of the members can be other business entities except nonprofits classified under sections 401(a) or 501(c)(3) of the tax code. For more on qualifying as an S-Corp, see the instructions to Form 2553.
S-Corp filing requirements
An S-Corp must file Form 1120-S for each tax year to report the business’s income, gains, losses, deductions, and credits to the IRS.
They also have to provide each shareholder with a Schedule K-1, which reports the shareholder's portion of the S-Corp's profits and losses.
Both forms are due by the 15th day of the third month after the end of the S corporation's tax year. For a calendar year S-Corp, that translates to a March 15 deadline.
However, an S-Corp can request an automatic six-month extension by filing Form 7004 by the original due date (but this doesn't extend the time to pay any tax due).
S-Corp election
Your LLC must file Form 2553 to elect S-Corp treatment. This generally must be done within two months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year before the tax year it’s to take effect. All members of the LLC must consent to the election and sign the form or a separate consent statement.
It is possible to make the election at the same time your business files Form 1120-S. But you will generally have to satisfy the IRS's "late election" requirements. To do this, you must show a "reasonable cause" for failing to file Form 2553 on time. Other requirements and procedures must be satisfied, too. See the instructions to Form 2553 for details.
TurboTax Tip:
If you want to convert an LLC or other business to an S corporation with a "late election," we recommend consulting a tax professional or attorney to make sure it's done correctly.
Selecting your tax year type
You can select the type of tax year your S-Corp will use on Item F of Form 2553. You can select to use the calendar year or a 52 to 53 week year ending in December. But you can also select a tax year calculated from the date you assumed ownership of the company, called an ownership year, or another tax year based on the period when the company began conducting business in accordance with its Articles of Organization. If you select either of these types of tax year, you will have to complete Part II of Form 2553. See the instructions to the form for more information.
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