Understanding the Tax Forms
A single-member LLC does not need to file Form 8832 before Form 2553. Businesses that want to change their tax classification to an S corporation should file Form 2553. When a single-member LLC adds more members, the business will be taxed as a partnership unless it files Form 8832 to change the classification.
Both LLCs and S corporations are pass-through entities where the income passes through to the owners. If the only member of the LLC is an individual, the LLC income and expenses are reported on Form 1040. If the only member is a corporation, the LLC income and expenses are reported on the corporation’s return.
When a single-member LLC adds more members, it can file Form 8832 to choose how it is taxed. Filing Form 2553 instead elects S corporation status. A single election can be made on Form 2553; it is not necessary to file both Form 8832 and Form 2553.
Filing Deadlines
Form 8832 must be filed between one year before and 75 days after its effective date. Most LLCs want their Form 8832 effective for their first tax year. The form must be filed no sooner than one year and no later than 75 days after beginning business.
S Corporation Election
You need to file Form 2553 within two months and 15 days of the date of your entity’s formation to elect S corporation status. If you miss this window, you can still file Form 2553, but you’ll receive the default tax treatment for the current tax year.
Differences Between LLC and S-Corp
The primary difference is that with a single-member LLC, only the business owner can report business profit/loss on their personal taxes. In contrast, in an S-Corp, all shareholders can.
Maintaining S Corporation Status
Once a small business files Form 2553 and is approved by the IRS to be treated as an S Corp, the election remains valid indefinitely. The business owner does not have to file Form 2553 every year.
Filing Method for Form 2553
IRS Form 2553 can be filed by either mailing or faxing the form. Currently, online filing is not available.
Determining Your LLC’s Status
It’s crucial to determine your LLC’s status as an S or C corporation before submitting Form 2553. Businesses that want to change their tax classification to an S Corporation should file Form 2553.
Ensuring Timely Filing
DEF therefore has until January 15 of the following year to file Form 2553 for the S corporation election to be valid for the company’s first year of operation.
Converting an LLC to an S Corp
To change your LLC to an S corporation, file Form 2553 with the IRS. A single-member LLC can become an S corporation by filing IRS Form 2553, similar to how a corporation elects S corp status.