S Corporation: Structure election IRS tax

An S (sometimes called S Corp) corporation is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to shareholders) deciding to be considered as an S corporation

An S corporation is a corporation with the designation of Subchapter S of the IRS. To qualify as an S corporation, you must register a business as a corporation in the state where it has its headquarters. According to the IRS, S corporations to “they are considered by law they are a single entity, separate and independente of those who are its owners.” This limits the financial liability for which you (the owner or “shareholder”) is responsible. However, the limited liability protection – S Corporations will not necessarily protect you from any litigation such as tort claims of an employee as a result of an incident in the workplace.

What makes it different from the S corporation of a traditional corporation (C corporation) is that profits and losses can happen to your personal tax return. Consequently, the business itself is not taxed him. Only taxed to shareholders. However, there is one important caveat: Any shareholder who work for the company must be paid “reasonable compensation”. Basically, the shareholder must be paid fair market value, or the IRS may reclassify any additional corporate income as “salary”.

Before you form an S Corporation, determine if your business qualifies under the provisions of IRS (in English).

To register as an S Corporation, you must first register as a corporation. After you to be considered as a corporation, all shareholders must sign and file a Form 2553 (in English) to choose your corporation to become an S Corporation

Once your company is registered, you must obtain business licenses and permits. Regulations vary by industry, state and locality. Tool Use Licenses and Permits (in English) to find a list of permits, licenses and federal, state and local records you need to operate a business.

If you are hiring employees, read more about federal and state regulations for employers.