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California pass-thru entity new tax election: questions re LLCs

Taxpayer has a single member LLC. Currently, income is reported directly on taxpayer's Federal 1040 and California 540 personal income tax returns.

For taxpayer to achieve the benefits provided by the new California pass-thru entity new tax election, I believe the following is required:

  1. File IRS Form 8832 to elect to have the SMLLC taxed as a corporation.

  1. File IRS Form 2553 to elect to have the SMLLC treated as a Subchapter S corporation.

  2. File California and Federal Subchapter S tax returns.

  1. Revoke the elections under items 1 and 2 above when appropriate or desirable, but no sooner than 5 years after making the elections.

Is this correct?

Question: Once filing Subchapter S tax returns in California, does the LLC still have to file annual LLC tax returns and pay the LLC tax and annual fee in addition to the Subchapter S taxes paid to California?

Thanks for any replies and any other thoughts.

Reply to
Taxed and Spent
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Wow, have I stumped the stars? LOL.

Now that I look at this, I believe an LLC must be converted to a corporation, and Sub S status elected. One cannot simply elect to have the LLC taxed as a corporation. More complicated, and one would likely want to convert the corporation back to an LLC when this tax gimmick vanishes in a few years.

Any thoughts? Anyone writing articles on this specific topic?

Thanks.

Reply to
Taxed and Spent

According to Taxed and Spent snipped-for-privacy@nonospam.com:

Look at the instructions for form 8832. At the bottom of the first column on page 5 it says

Do not file this form for an eligible entity that is: ...

  • Electing to be classified as an S corporation. An eligible entity that timely files Form 2553 to elect classification as an S corporation and meets all other requirements to qualify as an S corporation is deemed to have made an election under Regulations section 301.7701-3(c)(v) to be classified as an association taxable as a corporation.

The instructions for Form 2553 say "A corporation or other entity eligible to be treated as a corporation files this form to make an election under section 1362(a) to be an S corporation."

An LLC is an "entity eligible to be treated as a corporation", right?

So I think you file form 2553, say you're the 100% owner, and I expect the IRS will agree.

No idea about California law, I live in New York.

Reply to
John Levine

That's how it was in the beginning - first file the 8832 and t hen the

2553. They even let you put them in the same envelope. But soon, I suppose, the IRS decided that they didn't actually need all that paperwork. So it was changed to only needing the 2553. I mean, if an LLC files a 2553 there's nothing else it can mean. There is no confusion to avoid. So that's all you need.
Reply to
Stuart O. Bronstein

This is more a question about the new California law than the old Federal election situation.

Reply to
Taxed and Spent

This question pertains to the NEW California law. "in the beginning" is NOW.

Reply to
Taxed and Spent

I just took a look at the legislation. It just says that it has to be an S-corporation or an entity taxed as one. How it gets there is irrelevant. If you file the 2553 it will qualify as an S-corporation. I have no idea why you think that California law would trump federal law in determining if something is taxed as an S-corporation. It doesn't. No 8832 is necessary.

Reply to
Stuart O. Bronstein

For that purpose it's an issue of federal law, not state law.

But for the thing that is an issue of state law, you are incorrect. The California legislation applies to an LLC taxed either as an S- corporation or as a partnership.

Reply to
Stuart O. Bronstein

I think that is correct. Now I don't know why I changed my opinion from what I first thought. Thanks. I just checked - My incorrect second opinion was the result of poorly worded articles - several of them.

So the next question is:

The LLC has paid their LLC fee and tax for 2021, in advance, as is required.

I believe being taxed as a S Corporation requires advance payment of corporate fees and taxes for 2021, which was not done.

How does the LLC advance payments get credited to serve as the S Corporation's advance payments for 2021?

Thanks. This has been very helpful.

Reply to
Taxed and Spent

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