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Discussion:Undo S corp election

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Discussion Forum Index --> Tax Questions --> Undo S corp election


Suvi (talk|edits) said:

23 April 2007
An single member LLC formed last month filed Form 2553 to be taxed as S corp. Can it undo the election and go back to the default Sole proprietor status?

What are the pros and cons of choosing an S corp tax form to sole proprietorship?

thanks

Tstolley (talk|edits) said:

23 April 2007
A single member llc is generally considered a disreguarded entity for tax purposes. Electing to be an S-corp is risky because the company must behave like a corporation (have a board and meetings, etc.). The IRS could come back and retract the election and make the taxpayer pickup all the distributions as SE income...or so I've heard. Never had it happen to one of my clients.

JR1 (talk|edits) said:

April 23, 2007
You can't retro kill the election back to 1/1 and your default classification would then be a C corp. Ugh. Someone else can comment on how to uncheck the stupid box. As to pros and cons, how long you got? Generally the S is best when income of the bus. is at a point where a 'reasonable salary' is less, so that you can save SS taxes. But the cost of being a corp runs 1500-2000 per year with quarterly filings, year end return, state fees, etc. and considerably more if you're one of the unfortunates who are in California. So normally a biz starts out as a Sch. C and later on, becomes an S. Exceptions are for side businesses or where only PT services are provided since you can achieve the SS savings sooner.

Sandysea (talk|edits) said:

23 April 2007
If they revoke the election then they cannot elect it for 5 years...make certain they really want to revoke it....

Did they not have adequate information prior to forming the S corp? One month, did they receive the acceptance letter from IRS about electing to be an S corp?

Too many pros/cons to address here....

Wwtaxes (talk|edits) said:

28 August 2007
I noticed in searching that this discussion has an LLC that used 2553 to elect S Corp. I thought LLC's were supposed to use 8332 to do this. There is a reason for my question. I have a client (MMLLC) that accidentally did the same thing (filed 2553), and I'm wondering if they need to also file an 8332, or if they should wait and see what the IRS has to say in response to the 2553. Does anyone have any suggestions?

JR1 (talk|edits) said:

August 28, 2007
Nope. You're trapped in the old ways. Only the 2553 for over a year now. Maybe two? or more.

Vbcpa (talk|edits) said:

28 August 2007
The 8332 elects to be a corporation - not an S corporation. If you file the 8332 and want to be an S corporation - you then have to also file the 2553.

If the LLC wants to be an S corporation it can bypass the 8332 and simply file the 2553. The IRS uses that form for both - the corporation election and the S election.

Uncle Sam (talk|edits) said:

29 August 2007
It's Form 8832 - not 8332.

8332 deals with an ex-spouse consenting to a non-custodial parent taking an exemption for a dependent child.

LJACPA (talk|edits) said:

29 August 2007
I just did a late S election to be effective 01/01/07 for an existing C corp and for various reasons have determined that this was not the best course to go. However, I do want them to be an S effective 01/01/08. Would this, if I were to request that the late S election be 'retracted' and the effective date moved to 01/01/08, be considered a revocation? I never thought about the 5 year issue.

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