LLC Tax Reporting When a C election is on file
Steven Palmieri, a Tax CFO and the Entrepreneur's CFO, keeps a C election on the company return and reads the effective date before talking about a change.
See the company report
The company is the taxpayer.
A C election puts the company on Form 1120. The profit is taxed at the company. It does not pass through to an owner page the way a partnership or an S return does. People who are used to the pass through pattern keep looking for a page that this classification does not print. We say that at the start so the books are built for a company taxpayer.
Form 8832 is the usual sheet for a corporate election that is not an S election. Form 2553 would have been the S route, and it would also have counted as the corporate election. If the file holds an S acceptance, this is the wrong page. We follow the acceptance that was actually issued.
The lock after a change.
After a classification change, another election is generally barred for 60 months. We put the effective date on the note before anyone talks about leaving C treatment. An election that took effect on the formation date is not counted as that kind of change. Those two sentences are the whole of the timing advice on this page. The procedure for a late request is not restated.
An election generally cannot take effect more than 75 days before it is filed, nor more than 12 months after. If the date on the acceptance and the date the company started do not tell the same story, we stop and reconcile the dates. The year on the acceptance is the year we use, even when another year would be easier.
Money leaving the company.
Wages for services are still wages, arranged with a provider the owner runs. A distribution of earnings is a different line from a wage, and from a repayment of money the owner loaned in. The equity rollforward has to show which one happened. We will not book all three to the same drawing account and sort them at filing time.
Estimates, when the company owes them, belong to the company. An owner's personal estimate does not pay the company's tax, and a company estimate does not pay the owner's tax on other income. The name on the voucher is part of the report. We read it.
What we will not pretend.
We will not prepare this return as a partnership because the owners dislike the company level tax. The election is a lock as much as a choice. Changing it is a separate filing with its own waiting period, not a software setting. If the acceptance in the file is not the one the owners remember, the file wins.
A year without profit can still owe the company return. A company with no profit can still have a Form 1120 to file. We would rather file a true zero than skip a year and meet it again as a notice. The same is true of an open payroll account with no wages. The account can still expect a filing.
Ask about the lock
You will be talking to the Steven Palmieri practice.