S Corporation is a specialized business ownership structure that provides liability protection of a regular corporation and avoids double taxation. The profit or loss earned by the company is directly passed on to the shareholder who then files their individual income tax return according to their income earned. When you decide to form S corporation you need to file a form at IRS that is essential for S corporation election.

Qualification Required for S Corporation Election

The IRS S corporation election form is required by businesses to file S Corporation Election status. The IRS demands fulfillment of the following qualification for S Corporation status:

• It must be a domestic company with no foreign investors.
• It must have 100 or fewer shareholders.
• It must have no more than one class of stock.
• It must adopt a taxable year ending December 31.
• S corporation election must be made no later than two months and 15 days after the first year of taxable year.
• All shareholders must agree to the S corporation election.

To file S corporation election, you must submit IRS Form 2553. It will declare your company as an S corporation. Your vote for S corporation will only be valid and useful when your company gets approval for it from the IRS.

How to File an S Corporation Election

After incorporating your business as S corporation, you can file IRS Form 2553. This form 2553, or Election by Small Business Corporation, provides detail of the company that is electing S corp status to the IRS. The form 2553 asks you to fill the following information:

                   Part 1:

• Name and address of your company
• Employer Identification Number (EIN) of your company
• State where the company is incorporated
• Date of incorporation
• The tax year in which the election will be effective
• Number of shareholders
• Name, phone number, and address of a legal representative or corporate who can be contacted to get more information if required
• Information of each shareholder that includes; name, consent for S corp election, number of shares owned, share acquisition date, tax year, and signature.
• A “Reasonable cause” for late filing, if applicable.

                   Part 2:

• An answer to questions about the corporation’s tax year

                   Part 3:

• Information related to Qualified S Trust Election

                   Part 4:

• Information related to Late Corporate Classification Election Representations

Fill in the above information in the Form online at the IRS website and send it to IRS via postal mail or fax. Your application will be processed within 60 days or 90 days if you check box Q1.

When to File S Corp Election

You must fill a form and completes all the requirement for filing S Corp Election by the 16th day of the third month of the taxable year of your corporation or the 15th day of the second month of a taxable year if the taxable year does not exceed two and half months.  You can also submit the form anytime within the taxable year preceding the year in which election will be valid. To file for S Corp Election, you don’t have to pay any fee.

Termination of S Corporation Status

The termination of an S corporation status can be either voluntarily or involuntarily.

Voluntarily

The shareholders who are holding more than 50% of the outstanding shares of stock may rescind the S corp election voluntarily.

Involuntarily

An S corp status can be terminated involuntarily if any of the disqualifying events occur like having more than 100 shareholders, or a shareholder outside the boundary of a state where S corp is incorporated, etc.

Re-election of S Corporation Status

In case of termination, a corporation can re-elect S corporation status on the fifth year after the year in which the termination became effective.

If you are finding any difficulty to file S corporation election, then you can take help of online business services.  They will help you in making an S corporation election a simple process. They provide you a lawyer who gives you the best legal advice for your incorporation.