A step-by-step guide to forming an S-Corp – Steps to make things easier for you
If you still don’t know what an S-Corporation is, it is a regular corporation which has applied for the tax status of an S-Corp. It not only safeguards you against any kind of personal liability but also permits you to pay taxes based on your personal tax returns, thereby avoiding double taxation as seen among C-Corps.
Though pass-through taxation and liability protection are the 2 main benefits of S-Corps, they even have few major caveats like:
- They have to be a domestic corporation
- They can’t have more than 100 shareholders
- They should have a single class of stock
- They should include only shareholders who are eligible
Read on to know more on the ways in which you can form an S-Corp. Follow them to reduce your level of stress.
Step #1: Follow the same steps for forming a corporation
The foremost consideration should be deciding on the state which you will want to incorporate your business in. You have to consider whether you will remain physically present, whether you can hire employees there, where you will decide to keep the bank accounts and which states you’ll be accepting the orders in. Once these are done, follow the steps:
- Ensure that the name of your business is available in the state in which you live
- Check whether your business name has got to do anything with your actual name
- Prepare the articles of incorporation
- Prepare corporate bylaws to make a list of the company’s rules
- Maintain corporate minutes of all shareholders and board members
- Apply for Employee Identification Number
- Apply for local and state permits
Step #2: Ensure you qualify for the status of S-Corporation
There are vital requirements you need to meet to qualify for the status of S-Corp and they are like:
- Be a domestic and eligible corporation
- Have only a single class of stock
- Have not more than 100 shareholders and all should comply with S-Corp election
- Have shareholders who consist of few trusts, individuals, estates but not corporation, partnerships and non-residents
- Have already adopted or is preparing to adopt one of the tax years
Step #3: File Form 2553 immediately
Once you form the corporation, you will require filing IRS Form 2553 in no time. It shouldn’t be later than 15 days and 2 months after the beginning of the tax year or any time during the tax year before the tax year in which the S-Corp status will come into effect. Follow all required directions on Form 2553 watchfully and make sure you get signatures of all shareholders.
Step #4: Obtain the tax status of an S Corporation
The service center will inform you whether the application is accepted within 60 days of filing. If you ask for a tax year that is based on business tax purpose, your application will take more 90 days. Your S Corporation tax status remains intact until it is revoked or eliminated.
Therefore, even after going through the above listed steps, if you still find it difficult to incorporate your business, you can go through Incfile reviews and seek help of the company to form your business with ease.