Can I Convert My LLC to an S-Corp When Filing My Tax Return?

by Joseph Nicholson
Some LLCs choose to file federal taxes as corporations.

Some LLCs choose to file federal taxes as corporations.

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The IRS applies default rules to determine how an LLC will be taxed. In general, a single-member LLC is taxed as a sole proprietorship, but a multi-member LLC is taxed as a partnership. Either type, however, can choose to be taxed as a corporation by filing the appropriate forms.

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Entity Election

LLC members can elect to be treated by the IRS as a corporation. This does not actually convert the business into a corporation, but only alters the way it pays federal taxes. However, entity election -- which requires filing Form 8832 with the IRS -- does not typically occur at the time of filing a tax return.

Effective Date

When Form 8832 is filed determines the effective date of the entity election. If you have been filing tax returns as a corporation, you can retroactively receive corporation status for tax returns filed up to three years and 75 days prior to the date of filing Form 8832. Otherwise, the effective date can be as much as 75 days before the actual date of filing the form. If the effective date is earlier than the due date of the company's tax return, the company can file as a corporation in that tax year. S-corp election has a different time table for its effective date, however, which could influence the decision to file this form.

S-Corp Qualifications

An LLC can elect to be taxed as an S-corp if it meets the general qualifications for such a business. This means the company must have fewer than 100 owners, none of which can be other business entities. The company must be organized under state and federal laws, and must not engage in certain excluded business practices such as insurance, international sales or banking.

S-Corp Election

To elect to be taxed as an S-corp, the company must file Form 2553 not more than two months and 15 days into the tax year in which the election is to take effect. All persons who have an ownership interest in the company on the day of election must consent to the election, and must be named on the form. Form 2553 also allows the business to choose whether to maintain its natural tax year or to choose another based on a history of business activity.