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S Status Election

An “S Corporation” is taxed as per the IRS’ Subchapter S code and acquires IRS approval when Subchapter S status is requested. As a legal entity (an individual that doesn’t exist), the S corporation is separate and distinct from the corporation’s shareholders. Based on Wyoming incorporation law, there is no difference between a C and S corporation, although they do share the same process of incorporation. However, each corporate entity is subject to federal and state taxes.

For S corporation tax status eligibility, the organization must abide by regulations set forth by the IRS. Factors addressed in the regulations involve the amount of stockholders, type of stock issued, and form of issued stock, among other aspects.

Tax implications. Corporate income or loss passes through to owners of the corporation, which includes capital gains. For those receiving it, it is treated as income. Similar to partnership income, stockholders who receive S corporation income are subject to state and federal income tax. Self-employment tax is not a factor assuming staff-stockholders acquire fair compensation (salaries) for their efforts and management input for the organization. Payroll taxes are applied to any employee compensation, no differently than staff in all other forms of economic engagement.

Qualifying for S Corporation Status

To obtain S Corporation status, an ordinary, for-profit corporation must initially be developed by having articles of incorporation filed with the proper STATE entity, which is usually the Office of the Secretary of State. Once the corporation is formed, you must have IRS form 2553 filed with the IRS. (1) Read this list for standard Federal S Corporation qualification requirements (6):

  • If this is a new corporation, the filing must be finished within 2 months of incorporation. Practicing corporations can change their status to S for their current year if an election is within 75 days of the tax year’s start.
S-corporation status