Are you ready to start or expand your business? If you are considering forming an S corporation (S corp), you must first determine if you are eligible for S corp status.
Eligibility for an S corp includes:
- Your company must be an eligible, domestic corporation (certain financial institutions, and domestic international sales corporations are ineligible).
- Shareholders must be individuals, certain trusts, and estates only.
- Must have no more than 100 shareholders.
- Must have only one class of stock.
Once you have determined your eligibility, you will need to follow the procedures for setting up a corporation, which vary from state to state. If the corporation is new, you will need to file an S corporation election with the IRS, using IRS Form 2553 ​Election by a Small Business Corporation​, within the first two months and 15 days of the tax year. If the election is made after this window, the election will apply to the following tax year. If a corporation has been operating as a regular C corporation and would like to change to an S corp, it must also file a timely IRS Form 2553 specifying election of an S corp. If the election is not made by the 15th day of the third month, the election will apply to the following year.
When you file the IRS Form 2553, you will need to provide the following information:
- Company name
- Employer Identification Number
- Company address
- Date of incorporation
- State of incorporation
- Effective date of S corporation election
- Member or shareholder information
- Fiscal tax year information
One of the most important things to consider when forming an S corporation are the tax implications associated and how your profits are taxed. To review the benefits and drawbacks, contact us at H&H CPAs for more information. We would be happy to help you determine if this business structure is the right fit for you.