can I file a form 8832 now for an LLC to be taxed as an S. Corporation for 2021? What are legitimate reasons for being last with the election?

[catherine3]

My client's single member LLC business income tripled last year and the self employment taxes are really high. Is there anyway to avoid paying these for 2021? Can I file the form 8832 now and request a late filing waiver? 

[jeffmcpa2010]

Have you considered the ramifications about payroll for the prior year, (presuming what you are asking might be possible, but I am not well versed in that area.) Would you be in a position of reclassifying a bunch of draws as Wages (in a corporation) and filing multiple amended state and federal payroll tax returns, all with late payments? You may need to run the numbers and see if after all that (and fees for preparing all those payroll reports) are you really ahead?

I'm not giving advice, just passing on the thoughts that went through my head.

[qbteachmt]

"and the self employment taxes are really high"

You're not Saving anything. All this does is Shift them around. Instead of the Schedule C business getting the expense deduction, the S Corp gets the expense deduction, and that still is the same person's pocket, really. This is not a reason to decide to become a corporation.

Have you looked at the math on the SE Form? That's where your client already gets their "employer" share of SE tax as Expense. That's why you see "92.35%" as:

"Generally, the amount subject to self-employment tax is 92.35% of your net earnings from self-employment."

Here: https://www.irs.gov/taxtopics/tc554

It's reiterative. The 1.45 + 6.2 for Employer is credited to the business, and that's why there is that reduction.

[catherine3]

Since we do not have a payroll set up, I was not going to file payroll for the previous year. I was going to give her a K1 with the net profit in box 1. We will set up payroll for this year. 

[TaxGuyBill · Accepted solution]

One of the requirements for a late election is that they INTENDED to be taxed as a S-corporation at the beginning of 2021.

Based on your comments and the fact they did not do payroll, it seems like that was not their intention, so it would not qualify for the late election.

[catherine3]

Thank you. That makes sense. 

[qbteachmt]

"I was not going to file payroll for the previous year. I was going to give her a K1 with the net profit in box 1."

You cannot do this for S Corp, though. That is violating the requirement for Reasonable Wages. Yes, of course a shareholder gets a K-1. No, you cannot give only a K-1. S Corp shareholder that works for the business is Employee-Shareholder.

Payroll is required.