Making the decision to establish a S corporation can be a wise choice if you’re a small business owner hoping to reduce your tax burden. But applying for S corporation status can be a little bit difficult. This article will walk you through the S election filing procedure and provide answers to some frequently asked questions.
The quick response is no. While Form 2553 is used exclusively for choosing S corporation status, Form 8832 is utilized to amend the tax classification of your company entity. You can submit Form 2553 instead of Form 8832 if you’re beginning a new business. If your business is already up and running, you must first file Form 8832 to modify your tax filing status before filing Form 2553 to elect S corporation status.
The penalty might be severe if you submit your S election after the deadline. For calendar-year corporations, the due date for submitting Form 2553 is normally the 15th day of the third month of your tax year, or March 15th in most cases. For each month or portion of a month that your election is late, you will be charged a cost of $195 and be required to file a request for IRS relief if you miss this deadline. The highest fine is $3,000.
If you meet the requirements, you may elect S company status for the 2021 tax year. Your company must only have 100 shareholders who are either citizens of the United States or residents in order to be eligible. Additionally, the S election must be approved by all shareholders and your company must be set up as a domestic corporation.
You can vote for S in the middle of the year, yes. There are certain limitations, though. You must submit Form 2553 by the 15th day of the second month of the tax year in which the mid-year election is to be effective if you want to make one. The election must also be approved by all shareholders, and your company must satisfy all prerequisites for S corporation status.
To sum up, applying for S company status can be a little intimidating, but with the appropriate advice, it can be a quick and easy option to reduce your tax liability. To make sure you’re choosing the best course of action for your company, it’s always a good idea to speak with a tax expert or accountant if you have any questions regarding the procedure.
No, you are not required to submit a S corp election yearly. Your corporation will typically continue to be a S corporation until it is terminated or the corporation no longer satisfies the eligibility standards after you have applied for S corporation status and it has been granted by the IRS. The corporation must nevertheless submit Form 1120S, an annual tax return, and copies of Schedule K-1 to each shareholder.
Death, serious sickness, natural catastrophes, and other unforeseen situations beyond the control of the corporation or its officers are all considered legitimate excuses for failing to timely file Form 2553 (which is required to apply for S corporation status). To ascertain whether a reasonable cause exists, the IRS will examine each case separately.