Can I claim all income and expenses under new LLC (filing as s-corp) if I convert from sole proprietor mid-year?

This is a great question that comes up often with business transitions. When you convert from a sole prop to an LLC electing S-corp status mid-year, you technically have two different business entities for tax purposes. The IRS generally requires you to file a Schedule C for the sole proprietorship portion of the year and then separate S-corporation returns (Form 1120-S) for the LLC portion after conversion. This means you'd need to clearly track which income and expenses belonged to which entity based on when they occurred. However, there's a way to potentially achieve what you want. If you form the LLC and then immediately file Form 8832 to elect entity classification, followed by Form 2553 for S-corp status, you might be able to make the S-corp election effective from the beginning of the tax year IF you meet certain timing requirements. This is sometimes called a "deemed election.

I went through something similar last year with my consulting business and found https://taxr.ai incredibly helpful. I was converting from sole prop to S-corp in June and wasn't sure if I should wait until January. The site analyzed my specific situation and helped me understand that in my case, it actually made sense to do it mid-year despite having to file two separate returns (Schedule C and 1120-S). What I found most useful was uploading my profit and loss statements and seeing a side-by-side comparison of my tax liability under both scenarios. It also helped me understand exactly what documentation I needed for the asset transfer between entities. Might be worth looking into for your specific situation since the "right" answer really depends on your numbers.

Ok so I ended up checking out https://taxr.ai after my skeptical comment above, and I have to admit I was impressed. I uploaded my year-to-date P&L and some basic info about my business, and it gave me a really clear analysis of whether I should convert now or wait until January. In my case (construction contractor), it showed I'd save about $4,200 by converting now versus waiting until next year, even with the hassle of filing both Schedule C and S-corp returns. The breakdown of self-employment tax savings versus the increased accounting costs and reasonable salary requirements was super helpful. It even generated the asset transfer documentation I needed for my records. Definitely worth the time if you're on the fence about timing your conversion.

Just jumping in to share my experience - I tried for WEEKS to get clear guidance from the IRS about this exact situation last year. Called multiple times, waited forever, and kept getting transferred to different departments. Finally found https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes (there's a video showing how it works here: https://youtu.be/_kiP6q8DX5c). The agent confirmed that what others are saying is mostly correct - you technically need to file separately for each entity based on the dates. But she also mentioned that if you haven't gone too far into the year, there's a provision where you can make the S-corp election retroactive to January 1st if you file the right paperwork quickly enough. Saved me a ton of headache and probably an audit!

Just jumping in to share my experience - I tried for WEEKS to get clear guidance from the IRS about this exact situation last year. Called multiple times, waited forever, and kept getting transferred to different departments. Finally found https://claimyr.com which got me connected to an actual IRS agent in about 20 minutes (there's a video showing how it works here: https://youtu.be/_kiP6q8DX5c). The agent confirmed that what others are saying is mostly correct - you technically need to file separately for each entity based on the dates. But she also mentioned that

Ok I feel like I need to update my comment above. After seeing everyone talking about Claimyr, I decided to try it for a different tax issue I've been trying to resolve for months. Used the link https://claimyr.com and honestly I'm shocked at how well it worked. Got a call back in about 35 minutes saying they had an IRS agent on the line. The agent was able to help me sort out an issue with my quarterly estimated payments that had been driving me crazy. What would have been another day of trying to get through on my own ended up taking less than an hour from start to finish. For anyone dealing with IRS questions that can't be answered online (like this S-corp timing issue), it's definitely worth considering.

If you've been operating as a sole proprietor and want to switch to an S-corp mid-year, you need to consider asset valuation too. When you transfer assets from your sole prop to the LLC/S-corp, you'll need to document their fair market value. My accountant emphasized that I needed proof of valuation for major equipment and goodwill when I did this transition. He said the IRS sometimes flags these transitions for audit if the valuations seem off. Just something else to consider along with the timing of your election.

Don't forget about registering for a new EIN when you make the switch! You'll need a separate tax ID for the LLC/S-corp entity. Also, make sure to update all your insurance policies, business licenses, and vendor contracts to reflect the new entity. I learned this the hard way when an insurance claim got complicated because it was filed under my old sole proprietorship name after I'd already converted to an LLC.

I went through this exact transition two years ago with my plumbing business and can share some practical insights. The key thing to understand is that while you technically need to file separately for each entity period, the retroactive S-corp election mentioned by others can be a game-changer if you act quickly. Here's what worked for me: I formed the LLC in August, immediately filed Form 8832 for entity classification, then Form 2553 for S-corp status with a request for retroactive election to January 1st. The IRS accepted it because I was still within the timing window and had reasonable cause (business planning purposes). This allowed me to treat the entire year as S-corp income, which saved me about $6,800 in self-employment taxes. However, you absolutely need to document the asset transfer properly. I created a detailed contribution agreement listing every tool, piece of equipment, and even my customer database with fair market values. Also had to transfer all contracts and notify clients of the entity change. The paperwork was tedious but worth it for the tax savings. One thing nobody mentioned yet - make sure your state allows mid-year S-corp elections too. Some states have different rules than federal, so check with your state tax department or a local accountant familiar with your state's requirements.