New LLC partnership - Filing 8832 & 2553 for S-Corp election

Thanks for the explanation. So just to be crystal clear, we can go directly from default partnership tax status to S-Corp without the intermediate step of becoming a C-Corp first? The IRS website seems confusing on this. Also, we started the LLC in March of this year. Does that mean we have until May 15 to file the 2553 for this year, or are we already too late?

Yes, you can go directly from the default partnership tax status to S-Corporation status without first becoming a C-Corporation. The IRS allows this direct election, which is why you don't need Form 8832 in your case. Since you formed your LLC in March of this year, you had until 2 months and 15 days after formation to timely file for S-Corp status for the current year. That window has passed, but you have two options: file Form 2553 now with a statement explaining reasonable cause for the late election (the IRS sometimes grants relief), or make the election effective for next year.

Did you find the process of filing Form 2553 straightforward after using their service? I've heard horror stories about the IRS rejecting S-Corp elections due to minor errors on the form.

I'm a little skeptical about tax software for something this important. Did it actually help with the timing requirements? That seems to be the trickiest part of these elections - getting them filed within the right window.

The process became much more straightforward after using their service. They provided a detailed checklist of common errors people make on Form 2553 and walked me through each section. Our election was accepted without any issues, even though I was terrified about getting rejected over something minor. Regarding the timing requirements, this was actually where they helped the most. They have this calendar feature that calculated our specific deadlines based on our formation date and explained all the relief provisions available for late filings. They showed us how to properly document our reasonable cause explanation, which is crucial if you're filing outside the standard window.

How does Claimyr actually work? Do they just call the IRS for you or do they have some special connection? The IRS phone system is so frustrating that I'm intrigued but suspicious.

Yeah right. Nothing gets the IRS to move faster. They process things when they process them. I've never heard of any service that can actually get the IRS to speed things up. Sounds like they just got lucky with timing.

They don't call the IRS for you - they use a system that navigates the IRS phone tree and waits on hold, then when they reach a representative, they call you to connect you directly with the agent. It's like having someone wait on hold for you until an actual human picks up. The key benefit isn't that they speed up internal IRS processing, but that they help you actually reach someone who can look up your case. In my situation, speaking with an actual agent allowed me to learn that my form needed additional documentation, which I wouldn't have known otherwise since the IRS wasn't going to notify me for weeks.

Is there some formula or percentage the IRS looks for when determining reasonable compensation? Like should 60% be salary and 40% distributions? I've heard different things from different people.

There's no specific formula or percentage that the IRS mandates. It's more about what would be a reasonable salary for someone in your position, industry, and geographic location if they were performing the same services but weren't an owner. For example, if you could hire someone to do your job for $80K in your area, but you're only paying yourself $30K and taking $100K in distributions, that would likely raise red flags. The best approach is to research comparable salaries in your industry and document your reasoning. Some industries have higher audit rates for this issue than others.

It's actually pretty normal right now. When we filed ours last year, it took about 8-10 weeks to get the acceptance letter. The IRS is still dealing with backlogs from what I understand. You can try calling the IRS Business Entity line at 800-829-4933 to check on status, but be prepared to wait on hold for a long time. Usually no news is good news though - they tend to respond quicker with rejections than acceptances.

This is incredibly helpful advice, thank you! As someone new to this whole process, I really appreciate the professional perspective. One question - when you mention filing for next year by December 31st, does that mean we could file Form 2553 in November or December of this year to be effective for the 2025 tax year? Also, regarding the reasonable compensation documentation, do you recommend any specific resources for researching comparable salaries? I want to make sure we're being thorough from the start rather than scrambling later if we get audited.

Yes, exactly! You can file Form 2553 anytime during 2024 to make it effective for the 2025 tax year. Just make sure to clearly indicate on the form that you want the election to be effective beginning January 1, 2025. For salary research, I typically recommend using multiple sources: Bureau of Labor Statistics (BLS.gov) for occupational employment statistics, PayScale, Glassdoor, and industry-specific salary surveys. Robert Half and other staffing agencies also publish annual salary guides that are well-regarded by the IRS. The key is to document that you looked at multiple sources and can justify your compensation based on factors like experience, education, geographic location, and company size. Also keep records of job postings for similar positions in your area - screenshot them and save the URLs. If you ever face an audit, having this documentation package ready shows you made a good faith effort to determine reasonable compensation.

This is really valuable insight, especially about the administrative complexity that comes with S-Corp status. I hadn't fully considered the quarterly payroll obligations and additional bookkeeping requirements. Could you share what payroll service you ended up using? I'm trying to weigh whether to handle this in-house or outsource it from the start. Also, when you mention "substantial enough" income to make the self-employment tax savings worthwhile, is there a rough threshold where it typically makes sense? I want to make sure we're not creating unnecessary complexity for minimal tax benefit. The point about having time to plan since we're looking at 2025 effectiveness is reassuring - gives us a chance to get our systems in place properly.

@c242593d9e42 I'd be curious to hear about your payroll service recommendation too. We're in a similar boat trying to decide between QuickBooks Payroll, Gusto, or just having our CPA handle it all. From what I've researched, the general rule of thumb seems to be that S-Corp election makes sense when your net business income is around $60K+ annually, since that's roughly where the self-employment tax savings start to outweigh the additional payroll costs and complexity. But I'd love to hear real-world experience on this threshold. Also, did you run into any issues with state-level requirements? I know some states don't automatically recognize federal S-Corp elections and require separate filings.