S-corporations typically are not subject to a corporate level tax. An S-corporation’s profits and losses generally “pass-through” to its stockholders who then report their respective shares of these items on their individual income tax returns (Form 1040). S-corporations also provide their stockholders with a unique tax minimization strategy – the “dividend/salary split.”
However, the S-corporation election is not available for all entities. To make the S-corporation election an entity must:
- Be an eligible U.S. entity;
- Have only one class of stock;
- Have no more than 100 stockholders; and
- Have only U.S. individual citizens or residents as stockholders (with some exceptions).
An eligible entity must file Form 2553 (Election by a Small Business Corporation) with the Internal Revenue Service to make an election under I.R.C. ⸹ 1362(a) to be an S corporation. Generally, Form 2553 must be filed at any time during the tax year preceding the tax year that the S election is to take effect, or no more than 2 months and 15 days after the beginning of the tax year in which the S election is to take effect.
HOW WE CAN HELP
Dennis M. Lanphier, Esq., CPA, LL.M., is an experienced business attorney and certified public accountant who can help you determine whether an S corporation is appropriate for your business and assist you in drafting and filing the appropriate documents to elect S corporation status.