How to Become an S Corp
Before becoming an S corp, you must form your business through your state. This process varies depending on if you are forming an LLC or corporation and each state’s requirements. Once formed and application filed, S corp status should follow in 60 days. To take S corp status in the first tax year, apply within 75 days of forming.
Tax Implications of S Corp Status
The primary benefit of an S corp structure is that it circumvents the double taxation that other corporations are subject to. Shareholders file returns and pay taxes on profit and loss. An S corp shareholder can offset spouse’s income with losses, reducing taxes.
Qualifying for S Corp Status
To become an S corp, submit Form 2553 signed by shareholders. The IRS usually processes S corp applications in 60 days. S corps must be domestic corps. Most LLCs and C corps qualify. Financial institutions and insurance companies cannot elect S corp taxation.
The SOS will typically charge between $100 and $250 for filing and administrative fees. If multiple people are involved, an S corp may offer advantages over an LLC due to oversight via the board of directors.
After settling the formation fee of $195 and completing the requirements, you can legalize your corporation within 24 hours.
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