Questions that need be answered before starting an S-Corporation. Are you thinking about starting an S-Corporation? Do you know? Incorporating your business as an S-Corp has both advantages as well as disadvantages. Therefore, you must be aware of certain things before deciding to file any legal documents for starting an S-Corporation. Through this article, we will ensure to answer all your queries so that you will be able to make the right choice.
- Are you eligible for forming an S-corporation? This is a primary question that must be answered before you go on with all the legal formalities. Before filing your company as an S-Corp, it’s essential that you incorporate your company as a regular corporation (C-Corporation) initially. Then, IRS will evaluate whether or not your corporation meets the specific criteria. These specifications include:
❏ Your firm must be incorporated as a domestic C-corp. ❏ Your firm’s shareholders/stockholders must be either individual, or allowed trusts/estates. ❏ Your company should not have more than 100 shareholders. ❏ Your company should not be disqualified because of any reasons. ❏ The selected shareholders cannot be classified as partners, or corporation. ❏ Your company is allowed to have only one class of stock out of the available three categories. Also Read: Why starting an S-Corporation can be beneficial for your small business in 2019? - Are there any Tax benefits? The sole reason anybody wishes to switch from a regular C-Corp into S-Corp is that of the immense tax benefits. According to the law, IRS first taxes the corporation as a single entity, then again taxes different shareholders personally. Thereby, doubling the taxation. However, S-Corp has the benefit of passing-through taxes from the IRS. Therefore, you can save a lot of taxes while forming an S-Corporation. This can be an excellent good reason to start an S-Corp right now.
- Is there any need for a Tax Adviser? Having a tax attorney will not only be beneficial initially but, will also be very helpful after you incorporate your business. Your tax adviser will: ❏ Inform you about the different ways to obtain your EIN and how can you use it to open your company’s bank account. ❏ Also, help you to understand different legalities and will help you maintain your financial records for tax purposes. Also Read: Does the S corporation get Tax Benefits? - What is the procedure to obtain an S-Corp Status? To be treated as an S-Corp, first, you are required to fill the Form 2553 while filing your company’s tax returns. Your Tax adviser will help you with explaining all the details regarding tax saving and many more. The only thing you need to ensure is that this form must be signed by every shareholder/stakeholder of your company. - Will your S-Corp be able to engage investors? If you are thinking just having a single or two investors can help your business to grow, then you are highly mistaken. As the shareholders can only be individuals or some allowed trusts, this limits the number of investors for your corporation. Also, no foreign investors are allowed to invest in your firm unless you switch your status from S-corp. Plus, investors expect ROI very quickly which sometimes is impossible for Scorp. We hope these queries will help you decide whether or not to go on with your decision to form an S-Corporation. Once confirmed, you can complete the requirements online through the business services online to incorporate your business in a completely legit way.