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Electing Sub-chapter S Corporation Status

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After you have formed your corporation, you can decide to become a Sub-chapter S Corporation. Here is information on this type of corporation and how to complete a Sub-chapter S Election Form:

  • What is a Sub-chapter S Corporation? A Sub-chapter S Corporation is a corporation which elects "small business" status, which allows the corporation the benefits of limited liability of a corporation, but the tax rate of the individual shareholders.

  • How Do I File a Sub-chapter S Election?
    Use IRS Form 2553 to file this election.

  • What Kinds of Corporations are Qualified to Elect Sub-chapter S Status?
    The IRS has 8 qualifications for Sub-chapter S status, including:
    • It must be a domestic corporation, with no foreign investors;
    • It must have no more than 100 shareholders;
    • It has only one class of stock;
    • It must use a December 31 year-end.

  • When Must the Election be Filed?
    The IRS requires that the Sub-chapter S Election be filed no more than two months and 15 days after the beginning of the tax year the election is to take effect. For a startup, this means the first year of the business. If your business starts on January 7, you must file the Sub-chapter S election no later than March 15. Failing to file means you will not receive Sub-chapter S status for that tax year.

  • What is the Cost of Filing a Sub-chapter S Election? Should I Use an Attorney?
    There is no fee from the IRS for filing a Sub-chapter S Election. In order to make certain that the election is filed properly, you should retain an attorney to do this paperwork.

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