Here, we shall learn about the formation and the lifecycle of S Corporation, however, let us first know the primary objective of forming S Corporation.
The primary objective is the reduction of self-employment taxes.
Before we form an S Corporation for your business, it is important to ensure that S Corporation shall bring tax efficiency to your business; else maintaining S Corporation, record keeping and filing might become expensive. To ensure tax efficiency the business must work on revenue projections, expenses projections (including salary projections) and finally the tax projection. We shall go ahead to form S Corporation only if it makes sense for your business. We are here to help you with it.
How to form an S Corporation?
- Since S Corporation is just a tax election and not an entity, first form an underlying entity such as LLC, partnership, C Corporation or any other relevant ones that suits your business requirement
- Get an Employer Identification number (EIN) issued by the IRS for your entity. EIN is a must for the next three steps below – S Corporation Election (filing Form 2553), opening your business bank account and setting up payroll account for your business
- File Form 2553 with IRS for S Corporation tax election of the underlying entity. The IRS requires about 8 – 10 weeks for processing the Form 2553.
- Open your business banking account. It is always the best practice to have your business account separate from your personal account. It helps you keep the tab of your business cash in-flow as well as out-flow. Moreover, it is good from accounting and return filing (business as well as individual) perspective as well.
- When you tax elect S Corporation for your underlying entity, setting up a payroll account is a must even if you do not have any other employee. In the S Corporation, a business owner herself plays two roles simultaneously – One is that of an investor and another of an employee. Hence, payroll account, all the employment filing and record keeping are a must, even if the business owner is the only employee.
Once your S Corporation is formed, we shall work with you for all the regular compliances required to maintain S Corporation.