An S corporation election taxes business income once at the owner’s tax rate. To elect S corp status, file IRS Form 2553 by March 15th of the elected tax year, or file a late election.
Requirements for S Corp Election
Requirements include:
- 75 or fewer shareholders
- One class of stock
- Eligibility of shareholders
Invalidating Factors
Factors preventing a valid S corp election include:
- Over 75 shareholders
- Multiple classes of stock
- Ineligible shareholders
S corps avoid double taxation of income, unlike C corps. They pass losses and profits to owners’ personal returns.
Common Questions
Which one of the following conditions will prevent a corporation from making a valid S election?
The presence of over 75 shareholders, multiple classes of stock, or ineligible shareholders will prevent a valid S corporation election.
What is not a requirement for S corporation election?
A requirement not listed for S corporation election is multiple classes of stock, as S corporations are only allowed to have one class of stock.