LLC Tax Reporting When an S election is on file
Steven Palmieri, a Tax CFO and the Entrepreneur's CFO, treats an accepted S election as the company report, and sets wages up with a provider you run.
See the S report
The acceptance comes first.
Form 2553 is the S election, and it is also treated as the corporate election. The proof we want is the acceptance, not a copy of the form that was mailed and never answered. If the acceptance is missing, we stop and say the file does not yet support this report. Preparing the S return on a hope is how a year gets rebuilt in March.
The company files Form 1120-S. Each owner receives a page. The income on that page is still not the cash distribution. Wages are a third figure. An owner who performs services is expected to take compensation. We do not print a percentage of profit, because the work and the profit have to be looked at together, and a printed ratio would be a costume for a guess.
Payday stays a setup.
Pay for services, once the S classification is accepted, is arranged through a provider the owner already selected. Opening the payroll account and writing down the work are part of that setup. The weekly cycle itself stays outside this practice. A payroll printout can show that wages happened. It cannot replace a missing acceptance.
If the company was an S corporation and an owner never received a page, we look for the return before we look for a story. The return may be missing, or the owner may have been omitted. Either fact is better found in February than in a notice. We do not draft the missing page from a bank download.
Equity still has to roll.
Contributions, distributions beyond wages, and the balance that remains are written on the year end equity pages. They follow the S classification. A distribution in excess of basis is a different conversation from an ordinary distribution, and we will not label it until the rollforward is tied. An open feed stops that work.
The wages and the profit can both matter for the qualified business income computation on the owner's return. The computation itself is left off this page. The call can walk the actual profit and the actual wages. A page of ratios would age the moment the law or the profit moved.
The window around the election.
An election generally cannot take effect more than 75 days before it is filed, nor more than 12 months after. Late relief exists and is not restated here. An election effective on the formation date is not treated as a change away from a prior classification. If the company already operated under the default and then elected, that is a change, and the 60 month bar on a further election generally applies.
Estimates may still be due from the owners on the individual dates, because the S return itself often has no income tax while the owners do. We match the voucher to the person who actually owes it. A company voucher for a tax the owners owe is a mismatch we would rather catch in the same month it happens.
Ask about wages
You will be talking to the Steven Palmieri practice.