How to File as an S-Corp

Feb 11

How to File as an S-Corp

Filing as an S corporation (S-corp) involves several steps to ensure compliance with IRS regulations and state requirements. Here’s a step-by-step guide:

1. Form Your Business Entity

Before electing S-corp status, you must first establish a legal entity:

Choose a business name and register it with your state.
File Articles of Incorporation with the state’s business registration office.
Designate a registered agent to receive legal documents.
Obtain an Employer Identification Number (EIN) from the IRS.

2. Elect S-Corp Status with the IRS

Once your business is legally incorporated, you must formally elect S-corp status:

Complete and file Form 2553 (Election by a Small Business Corporation) with the IRS.
Ensure all shareholders sign the form, agreeing to the election.
Submit Form 2553 by March 15 if you want S-corp status to apply for the current tax year.
The IRS will review and confirm acceptance of your S-corp election.

3. Comply with State-Level Requirements

State rules for S-corps vary, so check your state’s specific filing procedures. Some key considerations:

Some states require a separate S-corp election at the state level.
You may need to file annual reports and pay state business taxes.
Some states impose franchise taxes or minimum fees on S-corps.

4. Set Up Payroll and Compensation

As an S-corp owner-employee, you must take a reasonable salary:

Set up a payroll system to withhold federal, state, and payroll taxes.
Issue W-2s to employee-shareholders at year-end.
Pay payroll taxes on salaries to avoid IRS scrutiny.

5. Maintain Compliance and Ongoing Requirements

To preserve your S-corp status, maintain proper corporate governance:

Hold regular board and shareholder meetings.
Keep meeting minutes and corporate records.
Ensure distributions follow IRS regulations and avoid disproportionate payments.

6. File Annual Tax Returns

Even though S-corps don’t pay federal corporate income taxes, they must file an informational return:

File Form 1120S (U.S. Income Tax Return for an S Corporation) annually.
Provide Schedule K-1 to shareholders, detailing their share of profits and losses.
Meet state tax filing requirements, if applicable.

Final Thoughts

Filing as an S-corp can offer tax advantages, but the process requires careful attention to legal and tax requirements. Consult a tax professional to ensure compliance and maximize benefits for your business.

Finn Price