What is an S corporation?
A. An S corporation is a standard corporation that has elected a special tax status with the Internal Revenue Services (IRS) by filing Form 2553. The formation requirements for an S corporation are the same as those for a C corporation, wherein formation documents must be filed with the appropriate state agency and the necessary state filing fees paid.
A S Corporation is a corporation that falls under a different IRS tax classification, specifically sub chapter S election using IRS form 2553. This allows the corporation to be taxed as a partnership, a “pass through” tax entity where the profit and losses are recorded on the shareholders individual tax returns.
Standard business corporations or C corporations are required to pay income tax on taxable income generated by the corporation. Making a subchapter S election by completing and filing federal Form 2553 with the IRS is a way to avoid having your corporation treated as a separately taxable entity. An S corporation is a standard business corporation that has elected a special tax status with the IRS. This tax treatment allows the corporation not to be a separately taxable entity. Instead, the income of the corporation is treated like the income of a partnership or sole proprietorship; the income is “passed-through” to the shareholders. Thus, shareholder’s individual tax returns report the income or loss generated by an S corporation. To be classified as an S corporation, a corporation must make a timely filing of Form 2553 to the IRS. This election must be made by March 15 if the corporation is a calendar year taxpayer, in order for the election to take effect for the current tax year.
Most new corporations filed elect S corporation status. An S Corporation is a corporation that has elected a special tax status. This tax treatment permits the income of the corporation to be “passed through” to the shareholders. Thus, shareholders report the income or loss which is generated by an S Corporation on their individual tax returns. In order to be considered an S Corporation, the stockholders of a properly filed corporation must elect such status within 75 days of formation for the current tax year, or at any time during the preceding tax year. This election is made by filing Form 2553 with the Internal Revenue Service (IRS). To qualify for S Corporation status, the corporation must be a domestic corporation; have only one class of stock; and, have not more than 35 stockholders, who must be individuals, estates or certain trusts. If you have any questions regarding election of S corporation status, please consult your tax advisor prior to making this election.
What is an S corporation?