An S-corp is a tax status that blends the benefits of partnerships with incorporation. While this particular tax status isn’t for everyone, it can provide perks to some business owners. Fortunately, the process to file isn’t difficult, especially if you opt for ElectScorp.com to assist. However, only some business owners meet the necessary qualifications and requirements.
An S-corp is a tax classification for corporations. The other common tax status for a corporation is a C-corp. The main difference entails how they’re taxed. But, filing for either may reap the reward of limited liability status, which keeps your personal assets protected in the event of a lawsuit.
Unlike a C-corp, though, an S-corp is classified as a pass-through entity. This ultimately means any profits or losses bypass the corporation and are given to the owners and shareholders. As a result, an S-corp isn’t taxed on a corporate level. Instead, taxes are paid on a personal level by the owners and shareholders.
By avoiding corporate business taxes, the owners can reinvest any profits into the company. When a person invests in a C-corp, they would have to issue dividends or pay a high tax on the money when it’s reinvested.
While the advantages of choosing an S-corp structure sound appealing, only some business qualify. For instance, the corporation must be domestic, meaning it has to be located in the United States. The requirements also state you can’t have any foreign investors.
The size of your company also plays a role in whether or not you qualify. S-corps must have a maximum of 100 shareholders. If a company has any more than that, it’ll need to file for C-corp status, which allows you to have an infinite number of investors.
Another requirement of filing for an S-corp is that you only have one class of stock for your company. Every stockholder you have must be a person, though some types of estates and trusts qualify. Partnerships, non-resident aliens, and corporations may not be shareholders of your company.
Additionally, an S-corp is required to use a December 31 year-end, meaning your company uses a calendar year as their fiscal year.
Keep in mind that the requirements for an S-corp, as deemed by the Internal Revenue Service (IRS), state your corporation may not be an insurance company, financial institution, or domestic international corporation.
Once you set up your corporation and start doing business, you can elect to file taxes as an S-corporation. If you weigh the pros and cons and decide filing for S-corp status is right for your company, you’ll need to fill out IRS Form 2553, also known as the Election by a Small Business Corporation. When filling out this paperwork, you’ll need to include detailed information about your corporation, including questions about your eligibility. Some specifics you’ll be asked about on your form are as follows:
Part of the questionnaire will ask you about how many shareholders you have to ensure you don’t have too many to be considered under this status. The questionnaire will go one step further and ask if you’re counting family members as one shareholder to keep your number under 100, which is allowed. The last section on the form will ask you about other specifics about your shareholders, such as when they were acquired.
You’ll need to file the form less than two months and 15 days after the year the election will take place or will take effect. Basically, how this works is if your business began on January 5 of that year, you must file S-corp status by March 13th of that year to qualify. Bear in mind that you’ll need to specify a reason why you’re filing past the election date, if you’re completing your application after the deadline
While this seems fairly straightforward, the process of filing for an S-corp can be quite a headache, especially if you’re unsure of the laws. You may find yourself spending a great deal of time filling out the form, researching, and finding out if you meet the requirements to file as an S-corp. And if you make a mistake on any part, it could jeopardize you being able to file for the year.
At ElectScorp.com, we can file for this particular tax status on your behalf. We ensure you remain compliant with the law, so you don’t find yourself wondering throughout the year if you did everything correctly or if you’ll receive a surprise letter from the IRS at some point.
As briefly noted, you may find yourself spending time researching and completing your paperwork, which can slow down processing. When filing with us, it takes 24 hours or less for us to file. Be aware that if you file on your own, there’s a possibility your application won’t be accepted, which could hold up the process. We, however, have a 99% approval rate, so you can rest assured knowing there’s a good chance your application will be approved.
Besides our standard services, we can also extend our assistance to you and answer any questions you may have. We may be able to find some loopholes for you as well.
Filing S-corp status may benefit your business come tax time. You must make sure you qualify first and follow all the requirements precisely. This means you could benefit from using a company that specializes in corporate tax status filing.