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For the small business owner a S Corporation can provide several tax benefits compared to other form of business entities. However, the challenge face is how to form a S Corporation?
A Certified Public Accountant (CPA), can help you in this regard. Click the link below to secure your complimentary consultation.
Generally S corporations begin as C corporations and then they elect to be treated as S corporations for tax purposes.
They are required to:
• be a domestic corporation.
• have only allowable shareholders (individuals, certain trusts, and estates).
• have no more than 100 shareholders.
• have only one class of stock, although different voting rights are permitted.
• not be an intelligible corporation (certain financial institutions, insurance companies, or domestic international sales corporations).
Form 2553 will be filled to make the election. The election must be signed by all shareholders of the corporation.
Once approved, the corporation will be treated as an S corporation for tax purposes.
Although all shareholders must consent to the election initially, no consent is required for shareholders that join after the election is made.
Shareholders must be individuals, certain trusts, or estates.
They may not be partnerships, corporations, or nonresident aliens.
Qualified retirement plans, trusts, and 501(c)(3) organizations are allowable shareholders.
Grantor and voting trusts may be shareholders as well. The limit of 100 shareholders is firm but members of the same family may elect to be treated as one shareholder.
The election can be made at any time during the year prior to the election taking effect; or no later than “two months and 15 days” after the beginning of the tax year. However, businesses that intended to be treated as S corporations and otherwise meet all the requirements of being an S corporation may file the election late if they have (and can show) reasonable cause. They must explain the reasonable cause for late filing on Line I of Form 2553.
User | 5/01/2022