Electing S corp status may come with major benefits for your therapy practice, including flexibility in how your income is taxed.
If you want to take advantage of S corp tax status, but you missed the deadline to file, here’s what you need to do.
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What does it mean to elect S corp status?
If your therapy practice is registered as a limited liability company (LLC) in your state, you have the option of electing S corporation status by filing IRS Form 2553.
When you elect S corp status, your company is treated as an S corporation. That comes with benefits, such as liability protection and, potentially, a lower tax bill. You can learn more from our Complete Guide to S Corporations for Therapists.
When is the S corporation election filing deadline?
Assuming your company’s fiscal year is the same as the tax year, you have until the 15th day of the third month of the year for which you aim to elect S corp status to file IRS Form 2553, which elects your status as an S corp.
Meaning, if you want your LLC to be taxed as an S corp for the year 2024, you have until March 15th to file the form.
If you miss that deadline, you can still elect S corp status, but you’ll need to file a late election. That’s covered, step by step, below.
What if I forget to file Form 2553 and then file my taxes with Form 1120S?
S corporations file their annual taxes using IRS Form 1120S.
If you’re a single-member LLC and you haven’t elected to be taxed as an S corp, the IRS treats your company as a disregarded entity. In many ways, it’s similar to a sole proprietorship. All your LLC’s earnings pass on to you, and you report them on your personal tax return with IRS Form 1040.
If you haven’t filed Form 2553, the IRS is expecting you to file your taxes with a Form 1040. What happens if you send them a Form 1120S instead?
Most likely, they’ll send you a letter saying they haven’t received your S corp election, and that they will convert your Form 1120S to a Form 1120 tax return if they don’t hear from you in 30 days.
In that case, you should call the IRS at the number included in the letter ASAP. Form 1120 is a C corporation election, and being taxed as a C corp could cause major complications—and an extra-large tax bill.
What is a late S corp election?
At last, some good news: If you file Form 2553 late, the IRS will probably accept it.
In fact, they’re more or less willing to accept “Oops, I didn’t know about S corp elections” as an excuse. And they’re willing to accept your election up to three years and 75 days after the date when it was meant to be effective.
That’s right—you could potentially file a late S corp election for the year 2021 in 2023 and have it accepted retroactively. Although, in a case like that, you’d benefit from having an accountant experienced with late S corp elections to help guide you through the process.
The process of filing a late S corp election typically looks like this:
- You fill out Form 2553 as you typically would if you were filing the election on time.
- You include some extra information (covered below).
- You file a hard copy Form 2553 via mail.
- Within 60 days you receive notice from the IRS that your election has either been accepted or rejected.
One minor variation: If you check the Q1 box in Part II of Form 2553, indicating that you’d like to follow a particular fiscal year for tax purposes, processing could take an extra 90 days.
Who qualifies for a late S corp election?
To qualify for a late election of S corporation status, your therapy practice needs to meet the following conditions:
- You’re within the late filing period. The date you file your late election must be no more than three years and 75 days after the deadline in the year for which you’re filing.
- You only failed to elect S corp status because you missed the deadline. Besides missing the deadline, there are no other blockers preventing you from electing S corp status. To see a list of requirements for LLCs electing S corp status, check out our Complete Guide to S Corporations for Therapists.
- You have reasonable cause. The next section includes a reliable reasonable cause to list on your late Form 2553.
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How to file a late S corp election
To file a late S corp election, fill out and complete Form 2553 exactly as you would if you were filing it on time, with two differences:
- On Line I of Part I, enter you reason for filing late
- If you are filing Form 2553 attached to your Form 1120S, across the top of Form 1120S write “INCLUDES LATE ELECTION(S) FILED PURSUANT TO REV. PROC. 2013-30.” If you are filing Form 2553 on its own, write “FILED PURSUANT TO REV. PROC. 2013-30.” across the top.
Some more details:
- As your reason for filing late, you can use this: “The information necessary to make an informed decision about the entity’s status was not available in time to file a timely election.” Amy Northard, CPA says she uses this excuse for her clients, and it has never been rejected by the IRS.
- These somewhat cryptic notes reference Revenue Procedure 2013-30, which established the rules by which a company could file late for S corp status.
Where to file a late S corp election
You can only file a late S corp election as a hard copy, by mail. To do so, mail the completed form to an IRS Center. Which IRS Center you send it to depends upon which state you live in.
Here is the address information the IRS includes in its instructions for Form 2553:
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Before filing a late S corporation election for your therapy practice, it’s a good idea to consult with an accountant and make sure it’s the right choice for your business.
For a complete guide to filing your taxes as an S corp—as well as requirements like setting up payroll, paying yourself a reasonable salary, and remitting employment taxes—check out our Complete Guide to S Corporations for Therapy Practices.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.
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