S Corporation status election
What is “S Corporation”?: An “S Corporation” is a corporation that elects to be taxed under Subchapter S of the Internal Revenue Code and receives IRS approval of its request for Subchapter S status. As a legal entity (an artificial person), the S corporation is separate and distinct from the corporation’s owners (the stockholders). Under Nevada incorporation law, there is no distinction between a C corporation and an S corporation. The incorporation process is the same. However, the two types of corporate entities are subject to differing federal and state tax treatment.
Eligibility for S corporation tax status is based on compliance with IRS regulations regarding the number and characteristics of stockholders, type of stock issued, and other characteristics specified in the regulations.
Tax implications. Corporate income or loss, including capital gains, pass through to the stockholders, and is treated as income to the receiving individuals. In the same manner as partnership income, S corporation income passed through to stockholders is subject to state and federal income tax, but is not subject to self-employment tax when employee-stockholders receive adequate compensation (salaries) for their labor and management input to the business. Pay of corporation employees (salaries) are subject to payroll taxes in the same manner as is the case for employees in any other type of economic activity.
Qualifying for S Corporation Status
To obtain S Corporation status, a general, for-profit corporation must first be formed by filing articles of incorporation with the appropriate STATE entity usually the Office of the Secretary of State. Once the corporation has been formed, you must file IRS form 2553 with the IRS.(1) Please refer to the list below for general Federal requirements for qualifying as an S Corporation (6):
- A Corporation must first be filed at the state level – We can file corporation at the state level in any U.S. State.
- Calendar Year Only-Corporations with fiscal years ending in a date other than December 31 must apply to the IRS for permission or under the provisions of IRS code section 444
- Maximum of 100 shareholders
- ALL shareholders must be either U.S. Citizens or Permanent Resident Aliens. Non-resident aliens are NOT acceptable
- The corporation must have issued only ONE class of stock
- No more than 25% of the corporation’s gross income can be derived from passive investment activities
We can help with S status filing. Preparing forms and filing – $25.
If this is a new corporation the filing must be done in less then 2 months after incorporation. Current corporation can change to S status for current tax year if election is within two months and fifteen days of the beginning of the tax year.
Great tips from IncParadise about incorporating S-Corp
Incorporate S Corporation in Nevada – Nevada doesn’t have State corporate income tax. First file regular corporation and then we will file S status with IRS.
Incorporate S corporation in Florida – Florida has State corporate income tax, but S Corporations are exempt!