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The basics of sub S corporation qualification

Many of the Fort Lauderdale small business owners who come to see us here at the law offices of Levi Williams, P.A. are looking to make the right decisions regarding the growth of their businesses. Many of those decisions are made during their earliest days of operations as they choose the most advantageous business structure to adopt. In this post, we’ll examine some of the benefits to incorporating, and how to determine if one’s business qualifies to be classified as a sub S corporation.

A subchapter S corporation is a tax designation given by the IRS. Different than a C corp, a sub S corp is considered to be separate from the shareholders who own it. Thus, it avoids double taxation in that only the shareholders are taxed, not the corporation itself. Aside from the tax benefits, the other major benefit to incorporating under this status is that it limits the ownership’s liability in the event of litigation.

According to Form 2553 from the Internal Revenue Service, companies wishing to elect to be treated as an S corporation must meet the following qualifications:

  •          It must be a domestic corporation or an entity eligible to be treated as a corporation
  •          It can have no more than 100 shareholders
  •          Its shareholders can only be individuals, exempt organizations, estates, and qualified trusts

Regarding shareholders, couples and families along with their collective estates may be counted as one.

In order qualify for S corporation classification for the current year, ownership groups must file a Form 2553 no later than two months and 15 days after the start of the tax year. Otherwise, the status change won’t take effect until the following year.

For more information on incorporating a business, visit our Corporate Law page. 

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