Small business owners frequently struggle with the decision of whether to create an S-Corp or maintain their current corporate structure. A kind of corporation known as an S-Corp permits pass-through taxation, which implies that the company does not pay taxes on its own income. Instead, the shareholders receive a pass-through of the gains and losses, which they then record on their own tax returns. In this post, we’ll address some of the most often asked concerns about S-Corps, such as why an LLC could decide to become an S-Corp, how to get an EIN, and what happens if you have two EINs. Why Would an LLC Register as an S-Corp?
Due to their ability to combine the advantages of a corporation and a partnership, limited liability companies (LLCs) are a common business form for small business owners. Profits and losses from LLCs are passed through to the business owners and recorded on their personal tax returns because LLCs are not taxed separately from other entities. However, for tax purposes, an LLC may decide to register as an S-Corp. Owners of LLCs who want to benefit from an S-Corp’s pass-through taxation advantages while retaining the freedom and simplicity of an LLC may find this to be advantageous. In addition, small business owners who are subject to self-employment taxes may be able to save money on taxes by forming an S-Corp. How Can I Get an S-Corp an EIN Number?
A unique nine-digit number called an Employer Identification Number (EIN) is given to firms by the IRS in order to identify them for tax purposes. You must either submit a paper application by mail or fax or finish an online application on the IRS website in order to get an EIN number for an S-Corp. The application will call for details including the company’s legal name, its address, its kind of entity, and the justification for requesting an EIN. The IRS will provide the company an EIN number once the application is finished, which will be utilized for tax purposes.
Businesses frequently unintentionally acquire multiple EIN numbers. This may occur if an application is submitted incorrectly or if a business changes its name or organizational structure. You must get in touch with the IRS to get one of your company’s EIN numbers cancelled if you find out it has two. The IRS will ask you for details on both EINs before deciding which one to terminate. It is significant to remember that the IRS may impose fines and penalties if you use two EIN numbers for the same company.
Having two EINs for the same company can be confusing and might result in mistakes on tax forms and filings. Additionally, the IRS may impose penalties and fines as a result. In order to avoid any problems with the IRS, it is crucial to make sure that your company only has one EIN number. If you find out that your company has two EINs, you should get in touch with the IRS right once to get one of them canceled.
In conclusion, choosing whether to form an S-Corp is a difficult choice that should be done under the direction of a tax expert. However, being aware of the advantages of an S-Corp, how to get an EIN, and what to do if you have two EINs will assist small business owners in making decisions regarding their corporate structure and tax requirements.
An S corporation’s stringent eligibility requirements are one of its drawbacks. For instance, S corporations are limited to 100 shareholders, and each shareholder must be a citizen or resident of the United States. S corporations are also only permitted to have one class of shares, which may restrict the company’s capacity to generate money.
You are not regarded as self-employed in the conventional sense if you own an S-Corp. You are an S-Corp owner who works for your own business and is paid a salary that is subject to payroll taxes. Any earnings above your pay, however, are regarded as distributions and are exempt from self-employment taxes.