The Basics of Entity Structuring
The Basics of Entity Structuring. The legalities (if you don’t know ask an accountant), and the taxation of said entity a single-member LLC
IRS Form 2553, “Election By a Small Business Corporation,” is required to switch a C Corporation to S Corporation status for purposes of federal taxation.
Businesses can file IRS Form 2553, Election by a Small Business Corporation and elect to an S corporation instead of a C corporation. The election allows a small business to register as an S corp rather than a C corp, and this comes with significant tax benefits that can save your company money during tax season.
Why you’d want to file Form 2553? One significant benefit of electing to become an S corporation is that an S corp’s net taxable income, in general, is taxed to the shareholders of the corporation, not the corporation itself. The income is shown on the shareholders’ returns and is taxed at their tax rates. S corporations can also write off start-up losses.
Additionally, an S corp’s net income is only taxed once. C corps, on the other hand, can potentially be taxed twice—at the corporate and shareholder level if dividends are paid out.
Who qualifies to make an S-Corp election? There are quite a few requirements a business must meet to qualify. Form 2553 requirements include:
The Basics of Entity Structuring. The legalities (if you don’t know ask an accountant), and the taxation of said entity a single-member LLC
How the new tax law will affect your clients’ S corporations
An LLC is an entity created under state law for federal tax purposes, and can be treated as a sole proprietorship, a partnership or a corporation. An S-corporation is an entity that passes corporate income, losses, credit and deductions to its individual shareholders for federal tax purposes. Choosing your business to be treated as an …