Of course, it could cost you. Here’s a question that I received at USTaxAid.com.
The reader asks:
I asked my accountant to prepare my 2017 taxes and get everything ready to file as an S-Corp (my business is a corporation). Alas, he prepared the return as if I am a sole proprietor. Now he says it’s too late to go back and do the S-corp election. Is this true?
If you haven’t yet formed a business structure, it’s too late for 2017. Business structures start on the day you form them or on the day, if later, that you actually begin doing work in them.
If your business is operating as an LLC, you are allowed to elect how you want to be taxed. That includes turning your LLC into an S Corporation for tax purposes.
Normally, you have to make the election to be taxed as an S Corporation within 75 days (2 ½ months) of formation. You can also elect the S Corporation status later, subject to the following rules straight out of the IRS rule book.
The following requirements must be met in order to qualify for late S corporation election relief by a corporation or entity classified as a corporation:
- The entity intended to be classified as an S corporation, is an eligible entity, and failed to qualify as an S corporation solely because the election was not timely;
- The entity has reasonable cause for its failure to make the election timely;
- The entity and all shareholders reported their income consistent with an S corporation election in effect for the year the election should have been made and all subsequent years; and
- Less than 3 years and 75 days have passed since the effective date of the formation.
In addition, if the electing entity is requesting a late corporate classification election to be effective on the same date that the S corporation election was intended to be effective, the requesting entity must also meet the following additional requirements:
- The entity is an eligible entity as defined in Treas. Reg. § 301.7701-3(a);
- The entity failed to qualify as a corporation solely because Form 8832 was not timely filed; and
- The entity timely filed all required federal tax returns consistent with its requested classification as an S corporation.
Bottom line, it might not be too late for you to file as an S Corporation, provided there was a C Corporation or LLC in place. However, at this point, you’re late for filing and may face some late filing penalties.