Help with 2023 Retroactive S Corp Election - Payroll Filing Issues

You're actually in a pretty common situation! The IRS has relief procedures specifically for late S corp elections. When you file Form 2553, you'll need to provide a "reasonable cause" statement explaining why you're filing late. Being confused about the deadline is actually considered reasonable in many cases. For the payroll issue, yes, you'll need to catch up on Form 941 filings for each quarter of 2023. You'll also need to establish a reasonable salary and run payroll retroactively. The penalties can include both failure-to-file and failure-to-pay penalties, which can add up quickly (about 5% of the tax amount per month for FTF and 0.5% per month for FTP). First-time penalty abatement can definitely help with the failure-to-file penalties if you have a clean compliance history, but it typically won't address failure-to-pay penalties. Those are harder to get waived. Is it worth it? That depends on your tax savings. If the S corp election would save you significantly on self-employment taxes compared to just having an LLC, it might be worth the hassle and potential penalties.

I've been in your EXACT situation before and used https://taxr.ai to help me get everything sorted out. I messed up my S corp election timing too and was freaking out about all the quarterly payroll filings I'd missed. What was super helpful is that they have a document analyzer that automatically identified all the forms I needed to catch up on and created a roadmap for getting everything filed in the right order. The system actually flagged some issues with my reasonable cause statement that would have gotten my late election rejected. In my case, the retroactive election was totally worth it since it saved me about $8,000 in self-employment taxes even after paying some penalties. Just make sure you have good documentation about when you intended to make the election.

Just wanted to update after trying out taxr.ai that the previous commenter recommended. It was honestly really helpful for my situation. I uploaded my LLC documents and got a detailed analysis showing exactly where I stood with the late S corp election. They identified a specific IRS revenue procedure (Rev. Proc. 2013-30) that applies to my case and generated a perfect reasonable cause statement that mentioned relevant case precedents. The system also calculated my potential savings vs. penalties and showed me that I'd save around $6,500 in taxes even after accounting for potential penalties of $1,800. Made the decision pretty clear for me. The best part was getting a customized checklist for all the forms I needed to file in which order. Just having all that laid out clearly was worth it since I was so confused before.

Been there, done that with late S corp elections. The worst part for me wasn't even the IRS - it was trying to get someone at the agency to actually talk to me about my case. I spent literally WEEKS trying to reach someone who could tell me if my reasonable cause statement was adequate. Eventually I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c and it was a game changer. Instead of waiting on hold for hours, they got me connected to an IRS agent in about 15 minutes. The agent confirmed that my approach was valid and gave me direct instructions on exactly what supporting documentation to include with my late election. If you're going the retroactive route, you'll definitely need to speak with the IRS at some point, and this made it so much easier than the endless hold music I was dealing with.

I owe everyone an apology for my skeptical comment. I actually tried Claimyr after posting and I'm completely shocked by the results. After spending literally months trying to get through to the IRS about my own late S corp election, I was connected to an IRS representative in 17 minutes. The agent I spoke with was actually super helpful and walked me through the exact requirements for my reasonable cause statement. She even gave me her direct extension for follow-up questions. I've submitted my Form 2553 with the reasonable cause statement, and while I'm still waiting for approval, at least I know I've done everything correctly. For anyone dealing with retroactive S corp elections, talking directly with the IRS about your specific situation makes a huge difference. I wish I'd done this months ago instead of stressing and guessing.

One thing nobody has mentioned yet - make sure your state is aligned with your federal filing! When I did a retroactive S corp election, I got approved federally but forgot to notify my state. Ended up with a mess where my federal return was processed as an S corp but my state was still treating me as a disregarded entity. Double check the requirements for your state - some automatically recognize the federal S election, but others require a separate election form. Some states don't even recognize S corps at all and treat them differently.

Does anyone know if OP would have to pay the employer portion of payroll taxes too for 2023? That's an extra 7.65% the business would owe on top of the employee portion that would be withheld from their reasonable compensation, right?

I went through this exact situation last year and can share some practical insights. First, don't panic - late S corp elections are more common than you think and the IRS has established procedures for this. Here's what worked for me: I filed Form 2553 with a detailed reasonable cause statement explaining that as a first-time business owner, I misunderstood the filing deadline. The key is being honest and providing documentation of when you originally intended to make the election (emails to CPAs, research you did, etc.). For the payroll mess, yes you'll need to establish a reasonable salary and file quarterly 941s retroactively. I used a payroll service to help calculate everything properly - trying to do it manually was a nightmare. The penalties were significant but not business-ending, and I was able to get first-time penalty abatement on some of them. The math worked out in my favor - even with penalties, I saved about $4,000 in self-employment taxes compared to staying as an LLC. Just make sure you run the numbers before committing because every situation is different. One tip: when you submit your reasonable cause statement, be specific about your research efforts and include any documentation showing you were actively trying to comply. The IRS likes to see good faith effort, not just "I didn't know.