Mark Kohler explains why you can't backdate an S-corp election to cover a year you operated as a sole proprietor. You need an LLC already in place first. His daughter Sydney ran as an LLC realtor for two years, then switched to S-corp status in year three and started saving money on taxes, something impossible without that earlier LLC foundation.
Chapters
If I start the year as a sole proprietor, is it too late to set up an LLC/S election for 2024?
Yes. If you were a sole proprietor all year and you have not set up your LLC yet, get it done. But I cannot backdate you into an S corp unless you had the LLC. So this is important, everybody. The LLC is like S corporation insurance. So if you have the LLC, then I can convert you to the S corp when the time's right. My daughter Sydney, she started out as an LLC, as a realtor, and she operated as a realtor for 2 years as an LLC. It was great. Then in her third year, Freaking nailed it. She started getting more closings. Her 1099 from the broker grew, and then boom, we made our S election, kicked her on payroll. Now she's saving money. But if she wasn't in an LLC, I couldn't backdate it. So for many of you, the LLC is a great place to start. Start getting used to the bank, the EIN, get used to QuickBooks, file your tax return. I have so many family members of mine in the last month where I was like, I need your expenses. Let's get it figured out. And it's so much better if we're more proactive with that. I myself was doing my QuickBooks this last month. So we all want to be a little more proactive so we can make better decisions. We can be more on top of our expenses. We're on top of our income. So get an LLC as being legit.
