Taxation Requirements for an S Corporation

Introduction

An S corporation, or Subchapter S corporation, is a special type of corporation that offers significant tax advantages. In this article, we’ll discuss the basic requirements for setting up an S Corp and some of the benefits you can expect from this type of business entity.

Create Articles of Incorporation

The next step is to file articles of incorporation with your state’s secretary of state. Articles of incorporation are a document that establishes the basic information about your corporation, including its name, purpose, and duration, the number of shares and par value, names and addresses of incorporators (you), along with a registered agent for service of process. The Secretary of State will charge you a fee for filing this document; however, there may be no fee if you meet certain requirements or if the corporation is nonprofit.

File IRS Form 2553.

To establish that your business is an S corporation, you must file IRS Form 2553. This form is available on the IRS website, but it’s only accessible to tax professionals. If you have the help of a tax preparer or accountant, they will be able to complete this step for you.

If your business has already been incorporated before filing its first tax return (i.e., if it was set up as an LLC), then you can use Form 8832 instead of Form 2553 to convert it into an S corporation.

Get an EIN.

An Employer Identification Number (EIN) is a unique 9-digit number assigned to businesses by the IRS. An EIN is required if you have employees, own a corporation, need to file tax returns, or pay taxes in your business name.

If you do not have an EIN and would like one:

• Go to the IRS website at www.irs.gov
• Click on “Employer ID Numbers” under the “Businesses & Professionals” heading on the home page
• On this page, click “Apply for an EIN Online” under “For Individuals Who Are Applying for an Employer Identification Number (EIN)” in the left column of that page

You will then be prompted to provide some personal information about yourself and your business including its name and address as well as other details such as whether it’s a sole proprietorship or partnership when entering into contracts with third parties such as clients/customers etc…

Set up a business bank account.

Now that you’ve decided to set up your business as an S corporation, the next step is to open a business bank account. You should choose an account that is separate from any personal accounts you may have. The best option is one with low fees and easy-to-manage features such as online bill pay and electronic deposits. Make sure it’s also convenient for you to access when working on the go since many businesses will require employees (and even contractors) to travel frequently.

Finally, make sure that this account is FDIC insured—that way, if something happens with your financial institution and they go out of business, the government will ensure that all of your money isn’t lost!

Choose employees.

You can choose to have up to 100 shareholders and up to 100 employees. If you hire employees, you must pay them Social Security and Medicare taxes, as well as federal unemployment tax on wages paid to your employees. For more information about these requirements, see the Instructions for Form 941-X (PDF), Claim for Refund of Overpaid FUTA Tax, or Federal Unemployment (FUTA) Tax Paid.

If you are an S corporation filing a calendar year return, include all payments made in that year through December 31 on Form W-2 issued in January of the following year with your Federal tax return when it’s filed by April 15th of that same year.

Control the number of shareholders.

The maximum number of shareholders is 100. The minimum number of shareholders, however, is one—and that person can be you. If you’re the only shareholder, you control everything in your company and don’t need to worry about any other reporting requirements. If you want to add someone else as a shareholder or subtract yourself from the mix (for example, if you want to transfer shares back into your name), that’s fine too. You can increase or decrease the number of shareholders at any time without affecting your S corp status: it’s as simple as changing names on some paperwork and sending it to IRS headquarters in Washington D.C., along with any applicable tax forms depending on whether or not an election has already been made for the year (more on this later). An S Corp can help you save on taxes and provide more flexibility than other business entities.

Conclusion

When you create an S corporation, you’re taking the next step in building your business. This can be a great option for many entrepreneurs, but it does come with some risks and responsibilities that should be considered before making your decision. It’s important to understand all of these factors so that you can make an informed choice about whether or not an S Corp is right for your company.