I have always reminded my clients who are considering filing taxes as pass trough entity or S corporation to file their form 2553 by March 15. S-Corporations must file by this deadline to receive certain tax benefits.
An S-Corporation is beneficial for someone starting a company who wishes to protect their own personal assets and wants to avoid the double taxation of a regular C-Corporation. The advantage here is that the profits and losses from an S-Corporation are passed through to the shareholders to be reported on their individual taxes.
C-Corporations are essentially taxed twice: once for its own profits, and then the shareholders are taxed for the dividends they receive based on the shares they own.
For example, the main difference between an S-Corporation and a regular C-Corporation is that the profits and losses are passed on to the various shareholders in the corporation. The shareholders are then taxed on their individual share of the corporation’s profits or losses and report this on their individual tax returns.
Requirements of an S-Corporation
All S-Corporations start out as regular C-Corporations. To become an S-Corporation, the corporation must meet certain requirements and file Form 2553 with the IRS. To qualify as an S-Corporation, the following requirements must be met:
• Must have less than 100 shareholders
• Shareholders must be U.S. citizens or resident aliens
• Shareholders must be individuals, estates, certain exempt organizations, and certain types of trusts
• Must have only one class of stock
• Taxes are done according to the calendar year ending on December 31st unless a special form is filed
Henry Aldana, President of Aldana & Associates, PSC, LTD. 301-770-4901 www.aldanas.com