S Corporation

Elect S Corporation tax status for your existing business.

After you form a corporation or LLC, you can choose to file your business taxes as an S corporation. An S corporation is a tax status election that retains the benefits provided by forming a corporation, while adding the additional tax benefits provided by a pass-through tax entity.

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What are the benefits of electing an S corporation tax status for your business?

Protect Your Personal Assets

Directors, officers, shareholders and employees all benefit from limited liability protection and are not liable for the debts or legal actions against the business.

Encourage Investment

S corporations allow the sale of shares of stock, which is essential for attracting potential investors and entrepreneurs for funding your business.

Avoid "Double Taxation"

By filing as an S corporation, you get the all of the advantages of filing a corporation but pay taxes as a pass-through entity similar to an LLC or sole proprietorship.

We handle the paperwork

MyCorporation can help you quickly and accurately file the necessary documentation to set up your business as an S corporation so you can start saving money now.

What is an S-Corporation Election?

An S-Corp Election is a tax-related filing. Many people think that an S-Corporation is a type of corporation, but really, an S-Corporation is a C-Corporation with an S-Corporation tax election. When the S-Corp tax election is made, the entity is telling the IRS that it would like to be taxed as a partnership rather than as a corporation. This is often done to avoid taxation at the corporate level and then again when distributions are made (at the individual level).

What are the benefits of filing as an S corporation?

At it's core an S corporation is just like any other corporation, providing limited liability protection for it's owners, a formal management structure, added credibility, and a strong foundation for outside investment. One of the unique features of an S corporation lies in the way it's profits and losses are treated by the IRS, and depending on your business can offer tax saving advantages over a typical C corporation.

What kinds of businesses should file as an s corporation?

S corporations are ideal for small business owners who wish to take advantage of corporation perks, while avoiding double taxation. While an S corporation's pass-through taxation is similar to an LLC or sole proprietorship, shareholders are not subject to self employment taxes which can equate to substantial tax savings depending on a number of factors. In most cases, corporations that would benefit from S Corporation status are those who plan on distributing the majority of earnings to its shareholders. Corporations who plan on retaining earnings for future investments in future tax years often choose the C Corporation because under the S Corporation, earnings will be taxed as if they were distributed to shareholders regardless of whether a distribution actually occurred or whether the corporation retained the earnings for future investment.

What are the requirements of filing an S corporation?

If you are considering s corporation tax status for your business, you should first be sure that your business meets the following requirements:

  • You must be filed as a U.S corporation, foreign corporations cannot elect S corporation tax status.
  • The business must maintain only one class of stock.
  • An S corporation is limited to a maximum of 100 shareholders.
  • Shareholders in the business must be individuals, estates, or trusts who consent in writing to the S corporation election. Other LLCs cannot be shareholders in an S corporation for example.
  • All of the shareholders of the business must have a valid US Social Security Number. The corporate fiscal year must end on December 31st.

How are S corporations and C corporations different?

The difference between an s corporation and a c corporation is the way the profits and losses are taxed by the IRS. While a c corporation is subject to double taxation, that is taxation at both the corporate level and taxation on the distributions made to its shareholders, a corporation that chooses to file as an S corporation passes its profits and losses directly to the shareholders. This pass-through taxation is similar to the way an LLC is taxed, with the main difference being that while the owner of an LLC is often subject to self employment taxes, a shareholder is not. This can lead to potential tax benefits in many cases, but can also be a disadvantage depending on the needs of the business.

Are you ready to start your business? We can help you file an S corporation election for $39 plus state fees. Click here to get started.

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Frequently Asked Questions

To qualify as an S Corporation in the present tax year, a "calendar year" corporation must timely file IRS Form 2553 with the IRS. If a corporation was in existence prior to the present tax year, then this filing must be submitted to the IRS on or before: March 15 of the present tax year. If the corporation is a "New Corporation", then the S Corporation election may be submitted at anytime during its tax year so long as the filing is made no later than 75 days after the corporation has began any of the following activities (whichever is earliest):

  • Conducted business as a corporation
  • Acquired assets, or
  • Issued stock to shareholders

An S Corporation begins its existence the same way that a C Corporation (discussed above) begins its existence, as a general, for-profit corporation upon filing the Articles of Incorporation at the state level. However, after the corporation has been formed, it may elect S Corporation status by submitting IRS form 2553 to the Internal Revenue Service (in some cases a state filing is required as well). Once this filing is complete, the corporation is taxed like a partnership or sole proprietorship rather than as a separate entity. Thus, the income is "passed-through" to the shareholders for purposes of computing tax liability. Therefore, a shareholder's individual tax returns will report the income or loss generated by an S-corporation.

To qualify as an S corporation, a corporation must timely file IRS Form 2553 with the IRS. This election must be made by March 15 of the current year if the corporation is a calendar-year taxpayer in order for the election to take effect for the current tax year. However, a "New" corporation may make the filing at anytime during its tax year so long as the filing is made no later than 75 days after the corporation has began conducting business as a corporation, acquired assets, or has issued stock to shareholders (whichever is earlier).

The corporation must:

  • Be filed as a U.S. corporation.
  • Maintain only one class of stock.
  • Maintain a maximum of 100 shareholders.
  • Be comprised SOLELY of shareholders who are individuals, estates or certain qualified trusts, who consent in writing to the S Corporation election.
  • NOT have a shareholder who is a non-resident alien.
  • Failure to observe ANY of the above requirements could revoke S Corporation status at any time.

Owners who want the limited liability of a corporation and the "pass-through" tax-treatment of a partnership will often make the S Corporation election. In most cases, corporations that would benefit from S Corporation status are those who plan on distributing the majority of earnings to its shareholders in the year those earnings are derived. Corporations who plan on retaining earnings for future investments in future tax years often choose the C Corporation because under the S Corporation, earnings will be taxed as if they were distributed to shareholders regardless of whether a distribution actually occurred or whether the corporation retained the earnings for future investment.

An S Corporation follows the same state formalities as does a C corporation (i.e. filing Articles of Incorporation and paying state fees). However, an S Corporation must make a special tax election under sub-chapter S of the Internal Revenue Code by filing IRS Form 2553. In addition, certain states require that the corporation file an S Corporation Election at the state level as well.

The S Corporation must complete and file IRS Form 1120S to report its annual income to the IRS each year.

ALL shareholders of the corporation must be U.S. Citizens or have U.S. Residency Status. If, for any reason, shares are somehow sold or transferred (even if by will, divorce, or other means) to a shareholder who is a foreign national, the corporation will lose its S Corporation status and be treated as a C Corporation.

An S Corporation that loses its status as such may not re-elect S Corporation status for a minimum of five years.