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S Status Election

An “S Corporation” opts for taxation under the Internal Revenue Code’s Subchapter S and obtains approval by the IRS upon request for Subchapter S status. As a non-existing individual (legal entity), the S corporation is distinct and separate from the shareholders of the corporation. In the eyes of Nevada incorporation law, S and C corporations have no distinction. They have an identical incorporation process. That said, both corporate entities face unique state and federal tax treatment.

To be eligible for S corporation tax status, the company must adhere to IRS regulations with regards the number of stockholders, form of issued stock, and other aspects outlined in the regulations.

Tax implications. Corporate loss or income, which includes capital gains, pass through to owners of the corporation. It is treated as income for individuals receiving it. Much like partnership income, S corporation income passed through to stockholders must pay federal and state income tax, but no self-employment tax if employee-stockholders obtain sufficient salaries (compensation) for their work and management feedback to the company. Salaries of thestaffare subject to payroll taxes just like employees in every other kind of economic activity.

S Corporation Status Qualification

To receive status for an S Corporation, a regular, for-profit corporation has to first be created by filing articles of incorporation with the relevant STATE entity, which is generally the Office of the Secretary of State. Upon formation of the corporation, you need to file IRS form 2553 with the Internal Revenue Service.(1) See the following list for regular Federal requirements to qualify as an S Corporation (6):

  • If this corporation is new, the filing needs to be completed no later than 8 weeks after incorporation. Existing corporations can switch to S status for an existing tax year if theelection is within 2 months and 15 days of the tax year’s launch.
S-corporation status