The IRS offers certain companies the option to avoid double taxation on corporate income by allowing them to elect to be treated as S-Corps. The business must satisfy certain requirements and submit Form 2553 to the IRS in order to make an S-Corp election. Who can make an S-Corp election, what terminates a S election, can you cancel a S election retrospectively, and can a single-member LLC decide to be taxed as a S corporation are all topics covered in this article. Who is eligible to vote in an S-Corp election?
The following requirements must be satisfied by the business in order to be eligible for an S-Corp election:
1. Be a domestic corporation
2. Have only allowable shareholders, such as individuals, specific trusts, and estates
3. Have no more than 100 shareholders
4. Have only one class of stock
5. Not be an ineligible corporation, such as a financial institution or an insurance company.
If the business satisfies all requirements, it may use Form 2553 to elect to become an S-Corp. The choice must be made no later than two months and fifteen days following the start of the tax year for which it is intended to have an impact. What occurs when a S election is revoked? If a business cancels its S-Corp election, it will begin to be taxed as a C-Corp as of the cancellation date. The revocation must be submitted no later than two months and fifteen days following the start of the tax year for which it is intended to apply.
1. Violation of any of the aforementioned requirements
2. Failure to maintain a calendar tax year
3. Having more than 100 shareholders
4. Issuance of a second class of stock
5. Failure to satisfy the ownership requirements for a qualified Subchapter S trust
Can you retroactively revoke the S election?
No, you cannot retrospectively revoke an S-Corp election. The revocation must be submitted no later than two months and fifteen days following the start of the tax year for which it is intended to apply.
A single-member LLC has the option of electing S corporation taxation. A single-member LLC can choose to be taxed as a S corporation, so the answer is yes. For tax reasons, the LLC must satisfy the same requirements as those listed above and submit Form 8832. The LLC can then use Form 2553 to elect to become an S-Corp after being recognized as a corporation.
Finally, for some businesses, choosing an S-Corp structure might result in significant tax advantages. Before making a decision, it is crucial to comprehend the standards and needs. Additionally, terminating or revoking an S-Corp election may have a major financial impact, therefore it is vital to speak with a tax expert before making any changes.
Yes, you can visit the IRS website to see if an LLC has chosen to become a S company. You can verify the status of a S company election for a particular tax year using an online service provided by the IRS called the “S Corporation Election and Termination” webpage. However, only tax years 2010 and beyond can use this tool.