What is an S Corporation and how to be One?

There are different terms for S Corporation, it could be coined as Subchapter S Corporation or called sometimes as Small Business Corporation. As a matter of fact, this is an IRS granted special tax designation which is permitting the business to pass its corporate income, deductions as well as credits to the shareholders. In general, S corporations are not paying income taxes rather, the individual shareholders of the company is splitting up the income or the losses among each other. Once everything is set and done, they report it to their personal tax returns.

The status of S corporation is allowing Corporate Directto avoid double taxation which is basically what is happening when a business is being taxed both at the individual and corporate level. In addition to that, take into mind that “S Corporation” is tax designation and not a type of business entity. It is just impossible to incorporate S corporation because to be one, you personally have to apply to IRS. With this being said, how businesses would be able to apply to become an S Corporation. In the next lines, you are going to find out the steps on how your business can be one.

Step number 1. Become an LLC or C Corp – the major requirement of a business to attain S Corp status is to be structured as C Corp which is basically a regular corporation. In comparison to S Corp status, incorporating as C Corp is actually something that must be handled through the state.

As an alternative, you could go for S Corp tax filing status if you’re an LLC and at the same time, you need to meet the criteria that is set by the IRS for S Corp status.

Step number 2. See to it that you have qualified for S Corp status – you need to know that not all C Corp could successfully become an S Corp. Now, for a company to successfully apply for an S Corp status, it is integral for them to meet requirements like being a domestic corporation, it should only have allowable shareholders, it can’t have 100 shareholders or more in total, it can have a class of stock, it couldn’t be an insurance provider, domestic international sales corporation or bank and all the shareholders of the company should unanimously consent to S Corp status. For more facts about business, visit this website at https://en.wikipedia.org/wiki/Entrepreneurship.

Step number 3. File a 2553 form – the moment that you have secured that your business has met all requirements of the IRS, then you must submit a 2553 form which will be signed as well by the company’s shareholders. Be sure to compare llc vs s corp here!