Corporation Election
Use your favorite search engine to find the IRS’ website; then locate and summarize the information required in making an S corporation election. Why do you think the IRS included these particular items as requirements?
This is a small business election. What portion of the requirements makes this a small business election? In other words, is there anything in the requirements that would make only small companies qualify?
Your postings should be qualitative and provide substantive depth that advances the Discussions.
Do the discussion and do the response #1 and 2 down below
Posted 1
An S Corporation is an election that businesses can make if they qualify under the Internal Revenue Services (IRS) rules. To qualify to become an S Corporation, you must be a company that is solely based in the United States under U.S law. The corporation cannot be expressly recognized as an ineligible corporation. These types of corporations may only have one class of stock and are limited to 100 shareholders in total. An S Corporation is like a partnership in that they are flow-through corporations. They elect to have all income, losses, deductions, and any credits directly to shareholders. Each shareholder will receive a schedule K-1 form that they must include with their taxes. S Corporation is another way to avoid double taxation for shareholders.
S Corporations are a small business election because of the limited number of shareholders and who can be a shareholder. Limits the double taxation on shareholders and reduces liabilities. Shareholders can be individuals, certain types of trust, and estates. They cannot be partnerships, C corporations, and all shareholders must be U.S. citizens. The requirements to be an S Corporation enable small businesses that the corporation owners typically operate, which prevents large corporations from benefiting from being an S corporation.
Reference
S Corporations. Internal Revenue Service. (2021, February 16). https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations.
Posted 2
For starters, the small business element of the small business election relates to entities with no more than 100 shareholders. In that, the rules state that a company must be a U.S. domestic corporation, one class of stock, less than 100 shareholders, and a few other requirements. A couple of reasons the rules are the way they are is 1) to allow bonified small businesses to take advantage of the liability protection and business structure of a corporation while avoiding double taxation by flowing profits and loses through to its owners and 2) limit bigger corporations from taking advantage of rules designed to benefit small business and small business owners. Small business are usually owner-operated and therefore benefit from the ability to receive their portion of the profits from a business without tax at the entity level. For an entity to elect the S-election they must file form 2553 no later than 2 months and 15 days of the beginning of the tax year the election is to take effect. LLC’s can also elect S-Corp status in order to help avoid payroll taxes! As long as the business continues to meet the requirements for S-Corp election, the business will maintain it.
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