Definition of S Corporation
An S corporation (or S corp) is a type of business structure in the United States that combines the limited liability features of a corporation with the pass-through taxation of a partnership or sole proprietorship. This structure allows the business to avoid double taxation, as the profits of the business are only taxed at the individual level.
Qualification for S Corporation Status
To qualify for S corporation status, the corporation must meet certain requirements: Be a domestic corporation, have only allowable shareholders, have no more than 100 shareholders, and have only one class of stock.
Taxation Differences and Benefits
The main difference between an S corp and a C corp is how each is taxed: Profits from a C corp are taxed to the corporation when earned, then taxed to the shareholders when distributed as dividends, creating a double tax. An S corp may pass income directly to shareholders without having to pay federal corporate taxes.
Comparison Between LLC and S Corp in NY
There is a distinction between an LLC and an S-Corporation regarding taxation. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners must pay federal income taxes on their portions of the business income.
Formation and Transition to S Corporation
To change an LLC to an S-corp in New York, you need to request S-corporation status by filing Form 2553 with the IRS. You will also need to update any applicable state tax forms and obtain any necessary certifications to be an S-corp in New York.
New York State S Corporation Details
New York S corp is a standard corporation or limited liability company that was established in New York and has elected to be treated as an S corporation for tax purposes. The New York State Department of State is responsible for filings for S Corps in New York.
Filing Requirements and Taxation Considerations
Prior to making the NY State S Corp election request the business will need to have its federal S corporation status confirmed. New York has a similar requirement to the IRS in that the S Corp election must be signed by all shareholders.
Pros and Cons of LLC and S Corp Structures
Whether you’re curious about establishing an LLC or launching an S corporation, starting a business is an exciting undertaking full of learning experiences. You can use this guide to sort out the difference between LLC vs S corp to make the best decision for your business.
Membership and Taxation Differences
The first significant difference between an LLC and S Corp is that an unlimited number of members can be part of an LLC, whereas S corps have a maximum limit on the amount shareholders that they may have.