Late S-Corp Election: What You Need to Know and How to Fix It

Electing S Corporation (S-Corp) status can provide significant tax benefits for small business owners, but timing is everything. If you missed the deadline to file your S-Corp election (Form 2553), you may still qualify for a Late S-Corp Election under IRS guidelines. However, failing to make the election properly can lead to higher tax liabilities, penalties, and administrative headaches. 

In this guide, we’ll explain what an S-Corp election is, who qualifies for late election relief, the filing process, and why consulting a tax professional is crucial to avoid IRS issues. 

What Is an S-Corp Election? 

An S-Corp election is a tax designation that allows a business to be taxed as a pass-through entity, meaning profits and losses flow through to the owners’ personal tax returns instead of being taxed at the corporate level. 

Key Benefits of S-Corp Status: 

✅ Avoids double taxation (corporate + personal tax). 

✅ Reduces self-employment taxes by splitting income between salary and distributions.

✅ Enhances business credibility with lenders and investors. 

To elect S-Corp status, a business must file IRS Form 2553 within 75 days of the start of the tax year you intended to make the election for (typically by March 15 for calendar-year businesses). If this deadline is missed, businesses may need to file a Late S-Corp Election. 

Who Qualifies to File a Late S-Corp Election?

The IRS provides relief for late elections under Revenue Procedure 2013-30, allowing businesses to file an S-Corp election retroactively if they meet the following criteria: 

✅ The entity was eligible to elect S-Corp status on the effective date. 

✅ The entity intended to be an S-Corp (e.g., operated as one, paid owners via payroll).

✅ The entity filed a tax return consistent with S-Corp treatment (e.g., reported pass-through income). 

✅ The failure to file Form 2553 on time was due to reasonable cause. 

Example of a Qualifying Late Election: 

A business was formed as an Schedule-C and began operating in January 2024 with the intention of being taxed as an S-Corp. However, the owner missed the March 15 deadline but has been operating the business taxes as if it were an S-Corp. The IRS may allow a retroactive election if the business can prove its intention to elect S-Corp status. 

S-Corp Election Requirements: Extra Work Involved 

Electing S-Corp status comes with additional record-keeping and compliance responsibilities, including: 

Required S-Corp Formalities: 

• Payroll Compliance: Owners must be paid a reasonable salary before taking distributions. 
• Corporate Meetings: Annual board meetings and shareholder meetings may be required. 
• Equity Tracking: Distributions must be proportional to ownership percentages. 
• Separate Business Finances: S-Corps must maintain separate bank accounts and financial records. 

These additional reporting and compliance measures make good bookkeeping essential for S-Corp businesses.

When a Late S-Corp Election Is Advantageous 

A late S-Corp election can be highly beneficial for businesses that: 

✅ Have significant net profits and want to reduce self-employment taxes.

✅ Already operate like an S-Corp (paying payroll, issuing K-1s). 

✅ Want to avoid double taxation while maintaining corporate liability protection. 

Related Reading: For more details on when to become an S-Corp, check out our full guide on When to Elect S-Corp Status. 

How to File a Late S-Corp Election (Step-by-Step Guide) 

If you missed the S-Corp election deadline, follow these steps to file a late election under Rev. Proc. 2013-30: 

Step 1: Complete Form 2553 (Election by a Small Business Corporation)

• Fill out IRS Form 2553 as if it were being filed on time (include the intended effective date).

Step 2: Attach a Late Election Statement 

Important: At the top of Form 2553, write:

“FILED PURSUANT TO REV PROC 2013-30” 

Attach a statement explaining why the election was filed late and confirming: 

• The business always intended to be an S-Corp. 
• The failure to file was due to reasonable cause. 
• The business has consistently reported income as an S-Corp.

Step 3: Submit the Election to the IRS 

• Fax Form 2553 to the IRS (recommended) OR 
• Mail Form 2553 to the appropriate IRS address (delays possible).
  • We don’t recommend mailing as it doesn’t offer the same proof of receipt from the IRS as faxing. 

Step 4: Wait for IRS Confirmation

You will receive a letter in the mail either approving or denying your application. Be sure to keep this for your records (forever) and provide a copy to your tax preparer. 

• If approved, the S-Corp election is retroactively effective from the original intended date. 

For more details and the latest IRS guidelines, visit the IRS website. 

Penalties & Issues from Not Filing an S-Corp Election 

Failing to properly elect S-Corp status can result in significant financial consequences:

Tax Consequences: 

• The business may be taxed as a C-Corp or default LLC, leading to higher tax rates.
• Self-employment taxes may apply to all business profits, increasing tax liability. 

IRS Penalties: 

• The IRS may reject pass-through treatment, forcing the business to amend previous returns. 
• Interest and penalties may be assessed on improperly reported income.

Why You Should Consult a Tax Expert Before Filing

Filing a Late S-Corp Election can be complex, and mistakes can lead to IRS rejections, penalties, or tax audits. A qualified tax professional can help: 

✅ Determine eligibility for a late election. 

✅ Ensure proper documentation to avoid IRS rejection. 

✅ Set up payroll compliance to meet S-Corp requirements. 

At LedgerFi, we specialize in S-Corp elections, late election filings, and business tax strategy. 

Need help filing your Late S-Corp Election? Contact LedgerFi today to ensure your business gets the maximum tax benefits while staying IRS-compliant. 

Final Thoughts: Don’t Miss Out on S-Corp Tax Savings 

If your business intended to elect S-Corp status but missed the deadline, you may still qualify for a Late S-Corp Election under Rev. Proc. 2013-30. Taking the right steps to file Form 2553 correctly can help you reduce self-employment taxes and ensure IRS compliance. 

Key Takeaways: 

✅ Missed the deadline? You may still qualify for late election relief. 

✅ Ensure compliance with S-Corp payroll, distributions, and tax filing rules.

✅ File Form 2553 with a late election statement to request retroactive approval.

✅ Work with a tax professional to avoid IRS issues and maximize benefits. 

Need expert guidance? Let LedgerFi help you file a Late S-Corp Election the right way! Schedule a consultation today.