An S Corporation begins its corporate existence similar to a C Corporation: Articles of Incorporation must be prepared and filed with the state office. Once filed, a “general for profit” corporation has been formed.
Next, the board of directors must meet and resolve to elect S Corporation status. This is achieved by preparing and filing IRS Form 2553 with the IRS. Some states also require a similar filing at the state office before a corporation will be recognized as an S Corporation for STATE tax purposes.
An S Corporation is a corporation that corporate income, losses, and deductions through its shareholders. Typically, a shareholder and/or owner of an S Corporation reports corporate income on his/her personal income tax returns.
To Qualify for S-Corp Status, a Corporation:
- Must be filed as a U.S. corporation
- Can maintain only one class of stock
- Is limited to 100 shareholders or less
- Shareholders must individuals, estates or certain qualified trusts
- Requires EACH shareholder consent in writing to the S Corporation election
- Requires each shareholder have a US Social Security Number
- Requires each shareholder to be a US Citizen or permanent resident alien with a valid United States Social Security Number
- Must have a tax year ending on December 31
How to apply for S Corporation Status
To qualify for S-Corp status, a corporation must complete and file IRS Form 2553 with the Internal Revenue Service no more than two months and 15 days (75 days) from the date of incorporation if the election is to take effect during the corporation’s first tax year.
Upon receipt, the IRS service center will notify the corporation, no more than 60 days after receipt of the filing, as to whether the s corporation election has been accepted.
What if I miss the S Corporation Deadline?
Well, there’s always next year! Where a corporation fails to timely file its IRS form 2553 with the IRS, the S Corporation election will NOT be effective for that year, Thus, the corporation will be taxed as a C Corporation.
The good news: a late S Corporation election is generally effective for the next tax year. However, relief for a late election may be available if the corporation can show that the failure to file on time was due to reasonable cause.