How to Form an S Corporation 1-2-3
Why Form an S Corporation?
A major benefit to starting an S corporation as opposed to a C corporation is that an S corporation can
avoid double taxation on the corporation's income.
S corporations can pass their income through to their shareholders, who then report the income on their
personal tax returns. This same benefit applies to a corporation's loss. The loss can be passed through and
deducted on the individual's tax return.
S corporations can also save money on lower payroll taxes. Why Not Form an S Corporation?
One disadvantage to operating as an S corporation as compared to a sole proprietor is that there is more
paperwork and bookkeeping involved. If you don't like accounting, you might want to think twice. Some states
also charge fees on corporations that sole proprietors do not have to pay. How do You Form an S Corporation?
The business must file form 2553 with the IRS. All shareholders must sign the document prior to submission.
Qualifications to become an S corporation include:
- The company must be a domestic corporation and needs to eligible
- Have a maximum of 100 shareholders, not including partnerships, non-resident alien shareholders or
corporations
- Have one class of stock
It is a good idea to learn more about the different business structure options and how they apply to your
particular business - before you make a decision.
More Information on S Corporations
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