I apologize for at inconvenience regarding this thread but I'm at a loss and don't know what to do. I have been in business for 4 years now and as I'm closing out my 1120 with my CPA he informs me that we have a problem, that the 2553 s-corp classification was never filed so now I'm showing personal incomes of 28k each for my father and myself with a total of 78k distributions.=======> Normally, if a corp that files Form 2553 after the 15th day of the 3rd month of its tax year of 2016 in your case but before the 15th day of the third month of the following tax year of 2017, then the IRS considers the S-Corp election to be valid for the following tax year of 2017 and not valid for the preceding tax year of 2016.As you did not file form 2553 then you did not request to be treated as an S Corp.I MEAN YOuR ENTITY TYPE IS STILL A c CORP ,NOT AN s CORP.Since your c Corp has been incorporated for several years and is currently taxed as a C-corp. then, you can file Form 2553 by Dec31st of 2016 if the company wishes to convert to an S-corp for the following year of 2017. so your 1120s for was not valid for the tax period of 2016;Timing is critical with Form 2553. The s corp election deadline dictates that it must be filed within 75 days of your c corp / LLC's anniversary of formation, or within 75 days of a new year. All shareholders must consent to the election and sign Form 2553. If Form 2553 is filed within the first two months and 15 days of your C corp?s tax year of 2016, the election is effective for the entire tax year of 2016; otherwise, the corp will continue to be taxed as a C corp until the following tax year.You often find it worthwhile to file Form 2553 for the thousands of dollars in potential tax savings an S Corp status can provide your C Corp.You do not
have to file a 2553 every year for an s-corp.
He told me to call him Monday. Can I still file for the S Corp? ===>As said previously ; Form 2553 had to be filed within the first two months and 15 days of your C corp?s tax year of 2016, the election is effective for the entire tax year of 2016.
Note: IRS Form 2553must be filed:
1.Before the 16th day of the 3rd month of the corporation's tax year, say, A Corp just incorporated on July 1st of 2016. A has until Oct 16th to file Form 2553 for the S-Corp election to be valid for the company's first year of operation of 2016
2.Before the 15th day of the 2nd month of a tax year lasting 2-1/2 months or less; say your Corp just incorporated on Nov 1st of 2016. Since the first tax year will be less than 2-1/2 months (just Novemer 1-December 31), the corp has until January 15th of the following year of 2017 to file Form 2553 for the S-Corp election to be valid for the company's first year of operationof 2016
3.At any time during the tax year before the tax year the election is to take effect; as said previously, say your c Corp has been incorporated for several years and is currently taxed as a C-corp. then, you can file Form 2553 by Dec31st if the company wishes to convert to an S-corp for the following year.
4.At any time after these deadlines if the corporation follows special rules for making a late S-corporation election;say your C Corp just incorporated on February 14th of 2016. It did not file Form 2553, however it wishes to be taxed as an S-Corp beginning with its first year of operation of 2016. Your corp will need to follow carefully the special rules for making a late election for S-Corp status.
Does anybody know or have any idea how much this is going to cost me?? I'm freakin out. According to my calculations I'll have to pay like $25,000 in taxes all because of my own negligence===>It depends on how extensive.Also Tax return preparation fees vary by type of return, geographic region. You need to contact an enrolled agent/a cpa doing taxes in your local area for professional help.
In order to properly choose S-corp status, a corporation needs to prepare and file Form 2553 and needs to be sent to the IRS. The IRS will then send a letter back to your corp confirming the corp's election to be treated as an S-corp.