LLC Tax Reporting Changing the classification
Steven Palmieri, a Tax CFO and the Entrepreneur's CFO, reads the effective date and the 60 month bar before a change is treated as available.
See the waiting periodThe filing makes the change.
Leaving the default, or leaving an election already in force, takes a form. Form 8832 is the classification change. Form 2553 is the S election, and it is also treated as the corporate election. Wanting the other report is not the same as having the acceptance. We prepare the return the acceptance supports. The return you wish you had is a future year, if the window is even open.
An election generally cannot take effect more than 75 days before it is filed, nor more than 12 months after. People ask for a change in March and want it to cover the year that just ended. Sometimes the window reaches. Often it does not. We compare the dates before we encourage the filing.
The 60 month bar.
After a classification change, another election is generally barred for 60 months. That sentence does a lot of quiet damage when it is ignored. A company that elected C treatment and wants S treatment two years later may be closed. We put the date of the last change on the note and count. We do not file the next form because a friend did.
An election effective on the formation date is not counted as that kind of change. A brand new company choosing S treatment as it opens is in a different box from a company that has already switched once. The formation paper and the acceptance have to be read together. One date without the other is how the bar gets invented or ignored.
Late relief is real and not copied here.
Late relief exists for some elections that missed the ordinary window. The procedure has conditions, and those steps are left off this page. A page that paraphrased the procedure badly would be worse than a page that points you to the form instructions and to a call. Bring the dates. We will say whether what you hold looks like an ordinary election, a late request, or a request the bar does not allow.
We will not staple a late request on top of an ordinary year and call the file settled. The two sheets stay two sheets. The return for the year follows the classification that is actually in force for that year, not the classification you have asked for and not yet received.
What has to move when the report moves.
A change from disregarded treatment to an S election turns on wages, a company return, and owner pages. Payroll setup with a provider you run has to exist before the first wage, not after the first return. Equity accounts have to be rebuilt so capital, wages, and distributions are different lines. We do not carry the old drawing account forward under a new name.
A change to C treatment turns the company into the taxpayer and generally starts the 60 month clock. Estimates may move from the owner to the company. Vendor forms do not reset. The books for the months after the effective date are the new classification. The months before it are the old one. A single year end journal entry is not a time machine.
Ask about a change
You will be talking to the Steven Palmieri practice.