An S corporation is a type of corporation that the IRS recognizes. S corporations follow taxation rules that differ from those that regular corporations follow. A main difference is that S corporations are exempt from double taxation. This is because the owner declares the income a corporation receives in individual tax returns. Corporations are not subjected to taxation of the income. The taxation rules follow those of sole proprietorship and partnership businesses. However, they enjoy the limited liability (protection) corporations receive. To apply for an S corporation status, you need to incorporate your business. To do this, you need to file formal paperwork called the "articles of incorporation" and pay the appropriate fees. Once you have done the necessary steps to incorporate, you will be able to apply for an S corporation tax status. You do so with the IRS by filling out the necessary forms in your state, as well as federal. If you choose to obtain an S corporation status, every shareholder in your corporation must apply within 90 days from the beginning of the fiscal year. Once you have been approved as an S corporation, you may keep that status for as long as you wish. To revoke your S corporation status, you need to send a letter of revocation to the state revenue department and the federal IRS. All shareholders must sign the letter. Every state has different rules and regulations pertaining to an S corporation status. You will need to fill out different forms for different states. The one requirement that is consistent to every state is that you first need to register with the IRS to become eligible for an S corporation status in any state. |
