How Do I Form An S Corp?
I’ve posted videos in the past discussing S Corps and the benefits of forming an S Corp, but this question still comes up: how do I form an S Corp? Once you have formed your business and decide that you want your business to be taxed as an S Corp, how do you actually do that?
If you have created an LLC for your business and you want it to be taxed as an S Corp, you will file IRS Form 2553. The form asks for some basic information about the business and it’s owners, and is generally pretty straight-forward.
The important thing to remember if you want to form an S Corp is that there is a deadline for submitting Form 2553 to the IRS. If you just formed your business, you have two months and 15 days from the date of formation to form the S Corp for the current year. If you are already passed that window, then you have 2 and a half months from the beginning of the next year to be taxed as an S Corp for that next year.
That may sound confusing, so let me paint you a picture. Let’s say you formed your business on April 1, 2015. If you file Form 2553 within two and a half months, your business will be taxed as an S Corp for all of 2015. If you file Form 2553 after that 2 1/2 month window, the business won’t be taxed as an S Corp until 2016. Alternatively, let’s pretend you formed your business in 2014 and didn’t want to be taxed as an S Corp at that point. You met with your CPA on August 1, 2015 and she recommended that the business switch to an S Corp. If you file Form 2553 by March 15, 2016, your business will be taxed as an S Corp beginning in 2016. But if you wait and don’t get around to filing the form until April 1, 2016, then your S Corp election will not take effect until 2017.
The IRS will make some exceptions and still accept late filings, but those exceptions are limited.
Once you have the form complete you just fax or mail it to the IRS. Assuming nothing goes wrong, in a month or two they will send you a confirmation saying that your tax status has changed and you are now an S Corp. Success!
Really, that’s it. It’s not as complicated as it sounds, I swear! It is still definitely a good idea to talk with your attorney or your CPA when doing this or simply have them take care of it for you. As simple as it is, it is still possible to mess it up or not accurately complete Form 2553, and dealing with the IRS is not always the most fun experience. (You can usually expect at least an hour hold time if you need to call the IRS with questions.) So, it’s definitely better to be safe rather than be sorry and just have a professional take care of it for you.