S-Corp Election and Revocation
A corporation or LLC must file an S-Corp election within 75 days of formation for it to take effect in the first tax year. An S election revocation filed early can be effective retroactively to the beginning of the tax year.
S-Corp Characteristics and Elections
Not everyone benefits from forming an S corp. The costs and tax savings need to be carefully considered. An S-Corp is established by filing Articles of Incorporation with the relevant authority. Unlike a C-Corp, there is no double taxation with an S-Corp.
Electing and Rescinding S-Corp Status
A single election on Form 2553 combines entity treatment as a corporation with the S corporation status. An S election cannot be rescinded retroactively, but specific reasons such as prohibited shareholders can invalidate the original election.
Retroactive S Corp Election
You can elect S Corp status for a previous year by filing Form 2553 and requesting a late backdating. The IRS allows this option within certain timeframe limits.
Pass-Through Taxation and Conversion
Once a business becomes an S-Corp, it operates as a pass-through taxation entity, passing income and deductions to owners. An LLC can also choose S corp taxation with only one owner, without altering its structure. The decision to switch to an S corp depends on balancing financial benefits and administrative complexities.