How To Repair a Late S Corporation Election

An S-Corporation election repair is the option available to businesses within the United States to be considered an 'S-Corporation' for tax filing purposes by the U.S. Internal Revenue Service after the filing deadline has passed. Moreover, while S-Corporations can elect officers, the repair of late S-Corporation election refers to the late filing of a business as an S-Corporation i.e. after the April 15 fiscal year deadline mandated by the U.S. Internal Revenue Service. This article will illustrate what an S-Corporation is, benefits of electing to become an S-Corporation, how to repari a late S-corporation filing in addition to providing tips to consider when making the decision to reclassify a business as a S-Corporation.

What is an S Corporation?

S-Corporations have unique tax advantages that a sole proprietorship, partnership or limited liability corporation do not. Specifically, S corporations avoid owner self-employment tax and social security taxes on salary. However, the lower social security taxes can also imply lower social security recorded income and credits which can have an impact later in life. Additionally, since the corporation's income is not taxed, the shareholders are meaning tax is still paid, just not by the company but rather the shareholders unless there is a net loss which means shareholders can deduct the losses on their form 1040 income tax forms potentially lowering personal income tax significantly.

An S-Corporation is a small business registered with the U.S. Internal Revenue service. Generally, for a business to be considered an S-Corporation for tax purposes, the appropriate paper work must be filed with the IRS before April 15th of a given year to qualify as an S-Corporation for the previous year's tax filing and tax considerations. If this paperwork is not filed by April 15th, the company will not be considered an S-Corporation for the previous tax year unless a repair is completed.

How to "repair" a late S Corporation filing

To repair a late S-corporation election it is important to understand what qualifies a company for a late S-corporation election filing and how to go about registering the company after the April 15th deadline. To qualify for late S-Corporation election the business must file an IRS form 1120S (U.S. Income Tax Return for an S Corporation) and a form 2553 (Election by a small Business Corporation) with an explanation of filing late according to the IRS 2007 policy change. Additionally, an IRS form 8832 (Entity Classification Election) can be filed with the previously mentioned two forms. This joint filing of documents essentially slows down the bureaucracy involved in changing corporate status.

In addition to the above filing requirement, several other conditions must be met in order for the late S-Corporation election filing to be approved. The following link provides some useful tips on what to place on the late form 2553 in addition to timing, business structure qualification. To qualify as an S-Corporation a business can have no more than 100 shareholders or less as determined by the State of incorporation in addition to conformity with all the applicable State and Federal requirements of incorporation. These requirements can be obtained from the appropriate Secretary of State's office.

S corporation election tips

When filing to become an S-Corporation it can be wise to verify the businesses structure is appropriate for the shareholders and businesses needs and goals. Since corporate structure is generally a long standing decision that cannot be easily reversed, the implications of ineffectively incorporating or electing S-Corporation has the potential to be quite negative for businesses unaware of specific caveats, taxation, and liability implications. Becoming aware of these things can be assisted through the following tips.

• Implement a diligent company risk management policy

• Contact the Internal Revenue Service

• Contact a business consultant

• Verify registration requirements

• Assess potential advantages and disadvantages

• Obtain and accurately complete the necessary paperwork and information needed for the 

S-Corporation election

The above tips can potentially better inform business owners and officers of the necessary steps, requirements and affects of initiating a formal change in business status from another type of business. Also, to avoid complications in the filing process, reviewing the late filing paperwork can be beneficial especially if the businesses profitability and success depends on the transition to an S-Corporation.

Summary

An S-Corporation is a type of business classification within the United States of America. Business can elect to change their classification to S-Corporation provided they meet specific State and Federal filing requirements. In some cases, election to become S-Corporations may be filed with the IRS after the April 15th tax deadline. In such cases, a late election as S-corporation procedure exists to help expedite the process and eliminate unnecessary complication in the transition to a S-Corporation.

When a business chooses to become an S-Corporation, it can be beneficial to properly assess the necessary requirements of such in accordance with the businesses strategic goals. Furthermore, when filing an election to become an S-Corporation after the IRS tax deadline, the need for accuracy and proper filing is given more weight of importance, as the process is already somewhat at fault. This article has provided sources, instructions and tips on how to increase the chance of successfully filing a late election to become an S-Corporation.

Sources:

1. http://www.irs.gov/newsroom/article/0,id=174675,00.html
2. http://taxes.about.com/od/scorporations/a/scorp_formation_2.htm
3. http://www.microsoft.com/smallbusiness/resources/startups/business-plans-entities/more-pros-than-cons-to-becoming-an-s-corporation.aspx#MoreprosthanconstobecominganScorporation
4. http://www.irs.gov/pub/irs-pdf/f1120s.pdf
5. http://www.irs.gov/pub/irs-pdf/f2553.pdf
6. http://www.irs.gov/pub/irs-pdf/f8832.pdf
7. http://www.irs.gov/businesses/small/article/0,id=98263,00.html