Getting a corporation designated as an ?S? can be a bit
confusing. If you are committed to getting an ?S? corporation,
here is how you do it.
?S? Corporation
The ?S? in S corporation refers primarily to a tax designation.
While electing to be an S corporation does have legal
implications, such as no more than 75 shareholders, the
designation really concerns pass through tax issues. Put in
layman?s terms, the designation simply means the corporation
will ?pass through? its taxes to shareholder in proportion to
their ownership interests. This allows shareholders to claim
profits and losses directly on their taxes and avoid the double
taxation of a C corporation.
To become an S corporation, you must file an election with the
IRS. Typically, no documentation is require to be filed with any
state entity, but make sure to check you particular
jurisdiction. Regardless, the filing with the IRS is made using
form ?2553 ? Election by a Small Business Corporation.?
To fill out form 2553, you will need to supply the following
information:
1. The name and address of the corporation,
2. The tax year to be covered by the election,
3. The date the corporation first had shareholders or began
doing business,
4. The name, address and social security number of EACH
shareholder, and
5. The signature of EACH shareholder.
If you have shareholders located around the country, making an
?S? election filing can be problematic. Getting everyone to sign
off on the document can take time and time is not on your side.
Time Requirements
The IRS puts strict deadlines on filing ?S? elections. In
technical terms, the election must be filed before the 15th day
of the third month of the tax year for which you are electing
the status. Ah, the IRS is so poetic.
In laymen?s terms, you should file the election within 75 days
of the incorporation. From a practical point of view, I suggest
you get the election signed and filed as absolutely soon as
possible. You should also file the election through registered
mail so you have a little proof if the IRS claims a late filing.
I don?t know why, but the IRS gets cranky when it comes to S
elections. If you follow the above steps and get the filing in
as soon as possible, you should be okay.
About the author:
Richard Chapo is with SanDiegoBusinessLaw
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