An eligible corporation or entity can elect to be an s corporation by filing form 2553 with the internal revenue service within 60 days of filing form 2553, the irs will send the corporation a ruling letter that states whether its election to be an s corporation has been approved or rejected. A sub-chapter s corporation (an s corporation) is a corporation which elects small business status, which allows the corporation the benefits of limited liability of a corporation, but the tax rate of the individual shareholders. If a corporation is terminated from its s-corp status, that corporation will not be eligible to elect s-corp status again for another five years on the flip side, once a company has registered as an s-corp and is subsequently approved, it cannot change its tax election for five years. 3 prepare a letter to the irs, terminating the election there is no official form to terminate an s corporation election the letter should be titled' revocation of s corporation status and.
An s corporation is a tax status election that retains the benefits provided by forming a corporation, while adding the additional tax benefits provided by a pass-through tax entity. S corporation status corporations may elect to register in new jersey as a sub-chapter s corporation since the s corporation status for federal purposes does not automatically flow through for new jersey state purposes, you must apply for s corporation status in this state and receive approval of the election. Under s corporation rules, however, a newly formed corporation must file the s election on or before the 15th day of the third month following the corporation's activation date, which is the earliest date that the corporation has shareholders, acquires assets, or begins conducting business. Perhaps the first thing to know, however, is that generally states treat s corporations the same way that the federal government treats s corporations for example, if you make a valid s election with the irs for federal income tax purposes, most often your state also honors that federal s election for state purposes.
S-corp status provides many benefits to the small business owner, but if not used correctly could result in what is called a blown subchapter s election one of the biggest benefits to s-corp status is the pass-through taxation it allows small business, which provides a payroll tax savings. The purpose of c-corp or s-corp election is to achieve federal and state tax savings as compared to the way the business would otherwise be taxed a c-corp tax election allows an entity to be taxed as a standard corporation. If your llc is taxed as an s-corp and you'd like to cancel this election with the irs, this is known as a voluntary revocation of s-corporation status (essentially undoing the filing of form 2553. Sample form for s-election revocation 7/04/2013 sterling olander 16 comments while entities taxed as s-corps are the default recommendation of most business and tax planners, there are a number of benefits derived from being taxed as a c-corp that should be carefully considered.
Election of s corporation status may be achieved by one method—unanimous shareholder consent the corporation does not elect s corporation status thus, any interest in electing s corporation status belongs to the shareholders. The corporation must meet s corporation eligibility criteria, and it must have intended to be classified as an s corporation as of the intended effective date of the s corp election the corporation can only have failed to qualify as an s corporation because it did not file form 2553 in a timely manner, not for any other reason. The election of s corporation status is made by filing a form called election by a small business corporation with the irs service center, where the corporation files its corporate federal income tax return. An s corporation, for united states federal income tax purposes, is a closely held corporation (or, in some cases, a limited liability company (llc) or a partnership) that makes a valid election to be taxed under subchapter s of chapter 1 of the internal revenue code.
The s-corp status is only viewed by the irs, not the state in the state's eyes the company is viewed simply as an llc regardless and the tax is not waived if you have any other questions, please feel free to contact katie hendrix in my office for a free business consultation at 888-449-2638 x110. Shareholders of eligible federal s corporations that haven't made the election to be treated as a new york s corporation for the current tax year will be deemed to have made that election under tax law section 660(i) if the corporation's investment income is more than 50% of its federal gross income for that year. A corporation electing to register as a new jersey s corporation must complete and file a new jersey s corporation election, form cbt-2553the filing due date for form cbt-2553 is one month later than the time to file a federal election.
A corporation or llc must file an s-corp election within two months and 15 days (~75 days total) of the date of formation for the election to take effect in the first tax year example: your articles of formation was filed on august 21st. To make the new york s election, file form ct-6, election by a federal s corporation to be treated as a new york s corporation to terminate the new york s election, file form ct-61, termination of election to be treated as a new york s corporation. New jersey s corporation status for the corporation of which it is a shareholder by completing the subchapter s election form (cbt-2553) signed by the trustee of the esbt 5.
The corporation for which the election was made or the termination occurred, and each person who was a shareholder in such corporation at any time during the period specified pursuant to this subsection, agrees to make such adjustments (consistent with the treatment of such corporation as an s corporation or a qualified subchapter s subsidiary. An s-corporation business structure is an elected structure for tax purposes in most cases, an s-corporation is initially formed as a different type of entity in its state of operation before the election is made, such as a c-corporation or limited liability company. S corporations are responsible for tax on certain built-in gains and passive income at the entity level to qualify for s corporation status, the corporation must meet the following requirements: be a domestic corporation. An s corporation is a corporation, or an organization that has elected to be treated as a corporation for tax purposes, that (i) is eligible to elect s corporation status and (ii) whose shareholders have all consented in writing to have the corporation elect s corporation status.