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.
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 provides 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 have to file an election with the IRS. Typically, no documentation is require to be filed with any state entity, but ensure to check out 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.
The IRS puts strict deadlines on filing "S" elections. In technical terms, the election have to 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 ought to file the election inside 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 ought to also file the election through registered mail so you have a little proof if the IRS claims a late filing.
I do not 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 ought to be okay.
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