Some corporations may elect to be treated as S corporations. This election affects the corporation's federal taxation. In its website, the IRS states: "Electing to be treated as an S corporation allows income to flow through the corporation without being taxed until it is claimed as income by the shareholders. This avoids double taxation of corporate income."
In order to qualify as an S corporation, you must make a timely and accurate filing of Form 2553, Election by a Small Business Corporation. According to IRS, the corporation must make its S election within the first two and one-half months of the corporation's taxable year, or, at any time during the preceding taxable year. If the S election is made after the first two and one-half months of a corporation's taxable year, then that corporation will not be treated as an S corporation until the next taxable year.
The IRS rules state that a corporation's taxable year generally begins on the earlier of:
1. the date the corporation had shareholders;
2. the date the corporation acquired assets; or
3. the date the corporation began doing business.
The IRS also states that a limited liability company (LLC) that is eligible to be treated as a corporation may be classified as an S corporation, provided that the entity meets all other requirements to qualify as an S corporation. If an LLC meets the other requirements to qualify as an S corporation, the LLC also files a Form 2553.
The signature line of Form 2553 must be signed and dated by the president, vice president, treasurer, assistance treasurer, chief accounting officer, or any other corporate officer authorized to sign. In addition on the Form 2553, there is a signature line for the Shareholders' Consent Statement. All shareholders who own stock on the day the election is made must consent to the election, and they must all sign and date the Consent Statement.
According to an article published by the IRS, S corporations are the most prevalent type of corporations. S corporations represent approximately 60% of all corporations. The total number of returns filed by S corporations has increased every year since 1997. S corporations became the most common corporate entity type in 1997.
Jo Ann Joy, CEO
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