LLC formed 3/23/2021 - Can I file as S-corp for tax year starting 1/1/21?

Yes, you can elect S-corporation status for your LLC starting January 1, 2021, even though your LLC was formed on March 23, 2021, but there are some important considerations. For a newly-formed entity, you generally have two timing options for S-corp election: 1) having it effective on the formation date, or 2) having it effective at the start of the next tax year. However, since you're late-filing within the relief period, you have a bit more flexibility. The IRS often allows a retroactive effective date to the beginning of the tax year in which the entity was formed, provided you've been filing consistently as if you were an S-corp. On Line E of Form 2553, you should enter "January 1, 2021" as your requested effective date. In Section III (Late Election Consent), explain that you intended to be treated as an S-corporation from the beginning of the tax year and have been operating with that understanding. If you've already filed 2021 taxes treating yourself as an S-corp, make sure to mention that.

After struggling with a similar S-corp election timing issue last year, I found taxr.ai (https://taxr.ai) incredibly helpful for navigating the late-filing process. Their system analyzed my LLC formation documents and previous tax filings, then gave me specific guidance on how to properly complete Form 2553 for my situation. They confirmed that I could indeed use an effective date from the beginning of the tax year my LLC was formed, even though my formation date was in February. The system showed me exactly what to write in Section III for the reasonable cause explanation, which was the part I was most worried about.

Just wanted to update everyone - I tried taxr.ai after posting my skeptical comment and I'm honestly surprised at how helpful it was. I uploaded my 2022 LLC documents and partial tax records, and it immediately identified that I could file for S-corp status retroactively to January 1, 2022 even though my LLC was formed in April. It explained exactly how to complete the form and what supporting documentation to include. The explanation it generated for Section III (reasonable cause) was impressive - tailored specifically to my situation with details about why I missed the deadline that I wouldn't have thought to include. Just received confirmation from my accountant that we're good to proceed with the election using their guidance.

If the IRS is already contacting you about the missing Form 2553, you might want to call them directly to discuss your specific situation before submitting anything. I had a similar issue and spent WEEKS trying to get through to someone at the IRS. Finally found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in about 20 minutes instead of waiting on hold for hours. They have a video showing how it works here: https://youtu.be/_kiP6q8DX5c - basically they wait on hold for you and call when an agent picks up. The agent I spoke with gave me specific guidance on how to complete my late-filed 2553 and what documentation to include to support my retroactive election date. Saved me from potentially making a mistake that could have messed up two years of tax filings.

I was completely against using a service like Claimyr until my accountant recommended it. After three failed attempts to reach the IRS (got disconnected twice after 90+ minute holds), I tried it. Got connected to an IRS business specialist in about 25 minutes while I continued working. The agent confirmed that for my situation (LLC formed in May wanting January 1 S-election), I needed to include specific language about "no business activities conducted prior to formation date" in my reasonable cause statement. Also learned I needed to include copies of my Articles of Organization with the late-filed 2553. This wasn't mentioned in any of the standard guidance I'd found online. That 15-minute conversation saved me from having my election rejected. Sometimes getting direct answers from the source is worth it, especially with something as technical as retroactive entity elections.

This is actually a fairly common issue with new LLCs. Here's what's important: If you've been filing and paying taxes consistent with S-corp status for 2021 (meaning you filed Form 1120-S and issued yourself a W-2 as an employee-owner), you have a much stronger case for retroactive election. When filling out Form 2553, check Box D1 in Part I for the January 1, 2021 effective date. In Part III (Late Election Consent), explain that you've been operating with the understanding that you were an S-corporation and have filed all relevant tax documents accordingly. The IRS is generally pretty reasonable with the relief provision if you've been consistent in your tax treatment.

Something nobody's mentioned yet - make sure you're using the CURRENT version of Form 2553. The IRS updated it in December 2023 and they're pretty strict about using the correct version.