What would the reason for late election be?

"What would the reason for late election be?"

"We are thinking we could have saved some taxes so please accept this election a year early" 😀

You can't elect S Corp for a Schedule C sole proprietorship.  Did he also incorporate, following state procedures?  When?  

That's funny!

He is an LLC (disregarded) and since 2022, hence the Schedule C.  Since he self-prepared his taxes, he did not know that he could make a late election for the prior year.  He paid $15K in self-employment tax in 2023.  Hopefully that helps.

Thanks for the help

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@Franck wrote:

he did not know that he could make a late election for the prior year. 

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Does he qualify for a late election?

Are you saying he had not intended to be taxed as a corporation in 2024?

Would the 1120-S be timely filed?

https://www.irs.gov/instructions/i2553#idm139855003360128

"He paid $15K in self-employment tax in 2023"

What tax savings would this be? He still owes FICA, but now he will owe both Employer and Employee share. Plus, he didn't do payroll, and he would need to do payroll as an S Corp. Then, of course, there are the other things he is late on, so penalties and interest tend to apply.

As a Schedule C filer, he gets half of the SE tax as a business deduction, but it happens as an adjusted calculation. As an S Corp, he gets half of the FICA as a business deduction.

Where's that savings coming from?

If he made $100K in Schedule C income, he could easily pay himself $60K wages and take $40K in dividends from an S Corp.  That would save him about $6,000 in SE Taxes.  How do you know he's not already doing payroll for employees?  But he can find someone to do quarterlies with one paycheck each period for, let's say, 10% of the savings or $600.    

Others would walk closer to the edge and pay $30K in wages with $70K in dividends.  IRS is giving up audits until 2029, but if this business has gross revenue of $1 million, it's a lot bigger target on Schedule C than it is on Form 1120-S.  

Thanks guys.  Client decided to keep the S-Corp start as of 01/01/2025 ans pay the 2024 SE tax.