Main Street Business #559 Retroactive S-Election for 2024: Why & How
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Jan 21, 2025 Discover how transitioning from an LLC to an S corporation could save you significant money on taxes. The hosts reveal the key tax advantages and the crucial steps to make a retroactive S election. They break down the differences in self-employment tax rates and the importance of reasonable compensation. Learn about the challenges of filing W-2s and the strategic benefits of proper income allocation. Plus, understand why knowledgeable financial advice is vital for mastering these tax savings.
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S-Corp Tax Savings
- LLCs don't save taxes; convert them to S-corps retroactively.
- Splitting net income between W-2 wages and K-1 distributions lowers self-employment tax.
Retroactive S-Corp Election
- File Form 2553, referencing Rev. Proc. 2013-30, to make a late S-corp election.
- Include a cover letter explaining the late election and send it to the IRS.
First-Year Payroll Workaround
- For the first year, claim FICA income on Form 1120S and Schedule C.
- This workaround ensures you pay self-employment tax, satisfying the IRS.