What is an S-Corporation Election?
An S-Corp Election is a tax-related filing. Many people think that an S-Corporation is a type of corporation, but really, an S-Corporation is a C-Corporation with an S-Corporation tax election. When the S-Corp tax election is made, the entity is telling the federal government that it would like to be taxed as a partnership rather than as a corporation. This is often done to avoid taxation at the corporate level and then again when distributions are made (at the individual level).
When the entity is taxed as a partnership, the corporation’s profits pass through the entity level and are taxed only at the shareholder level. There are specific requirements that must be met to qualify as an S-Corporation, so if this type of entity is of interest, you should make sure you qualify.
A large majority of our small business customers meet the following requirements:
- Be filed as a U.S. corporation
- Maintain only one class of stock
- Maintain a maximum of 100 shareholders
- Be comprised solely of shareholders who are individuals, estates or certain qualified trusts, who consent in writing to the S Corporation election
- All shareholders must have a US Social Security Number
- Corporate fiscal year ends December 31st
Failure to observe any of the above requirements could revoke your S Corporation status at any time. Whether or not an S Corporation is something that you would benefit from is a decision that only you can make. Please consult your lawyer or CPA for details.