If you have a limited liability corporation that is eligible to be taxed as an S Corporation, your business can make the election for S-Corp treatment within a specified time frame. The time frame that applies to your LLC depends on whether your company is new or not. Under the election, the Internal Revenue Service and your state's Department of Revenue will treat your LLC as an S-Corp rather than a default sole proprietorship or partnership. Elections must be made to the IRS on form 2553. Most states don’t require a separate state election. Check with your state Department of Revenue to see if you must make a separate election in addition to the IRS election.
When you form a new company, you can elect the S-Corp status for your business within the first 75 days of forming. Your formation date is based on the date you register the LLC with the state. For new companies, it does not matter when the business is formed during the year as long as you send Form 2553 to the IRS within the first 75 days. After the IRS accepts your request, your LLC will be taxed as an S-Corp for the entire tax year.
If your LLC is an existing company, you can only request S-corporation status within the first 75 days of a new tax year. Your LLC is considered an existing company if more than 75 days have passed since it was formed, or you have already filed a tax return for the LLC.
The reporting year you select for the LLC has an effect on S-Corp deadline dates. Many LLCs use a calendar year system that runs from Jan. 1 through Dec. 31. In this instance, an existing company would have until March 15 -- 75 days into a new tax year -- to file an S-Corp election. However, some LLCs choose a fiscal year reporting period. These tax years still run for 365 days, but start on a day other than Jan. 1 and end on a day other than Dec. 31. For example, a fiscal year LLC might choose to start the tax year on July 1 and end the tax year on June 30 of the following year. In this case, an existing business would have until October 15 to make an S-Corp election. New businesses can still use the calendar year reporting period regardless of when the business is formed. It does not have to use a fiscal year based on the month business started.
If you miss the deadline to file a request for S-Corp status, you can still make the election. However, in most cases the LLC’s S-Corp status will be effective starting the next tax year. In some cases you may be granted relief from a late election, which allows the LLC to have S-Corp status in the year the late election is received by the IRS. To qualify for relief, you must be able to show reasonable cause as to why your election was not made on a timely basis. The LLC must not have filed a return, and the election must not cause any shareholder’s personal tax return to be affected. Because of the direct link between S-Corp activities and a shareholder’s individual return, this requirement is not easily met, making relief from late elections unusual. If you file the election late, review the instructions for Form 2553 to see if you qualify for relief.