To elect S-corp treatment of your Illinois corporation or limited liability company, the federal government – not the state of Illinois – must approve a formal request submitted on an IRS form. However, there are a number of forms you must submit to the Illinois Secretary of State before you can even consider making the S-corp election, so it’s important to understand both the federal and state requirements.
In order to make an S-corp election, you must legally create the corporate or LLC entity in Illinois by filing articles of incorporation or organization with the Illinois Secretary of State’s office. The form you choose depends on the type of business you operate and the type of entity you form. If you are organizing your company with the intent to elect S-Corp status in the future, an online document preparation service can ensure that your company is arranged correctly.
Preparing Illinois Forms
Regardless of which type of Illinois company you form, you need to provide the same essential information. This includes a unique name for the entity, the name and address of a registered agent to accept legal documents served on the entity, the purpose for creating the corporation or LLC, and the name and address of the person filing the articles. Once the Illinois Secretary of State reviews and accepts the articles, your business entity is legally formed. The existence of a legal corporation or LLC is a prerequisite to electing S-corp status with the IRS.
S-Corp Benefits & Requirements
The main benefit of electing S-corp status for your Illinois corporation is that you and the other owners can avoid the double taxation that C corporations are subject to. This double taxation refers to the fact that the business pays tax on its earnings and shareholders pay a second tax on the dividends they receive from after-tax earnings. S corporations, however, are taxed as a pass-through entity. Pass-through taxation allows each shareholder to report a portion of corporate earnings and deductions on their personal tax returns, meaning corporate earnings are only taxed once. For a LLC, the members are subject to the same tax treatment as corporate shareholders after making the S-corp election. However, a LLC can choose to be taxed as a sole proprietor, if only one member exists, or as a partnership to take advantage of pass-through taxation without having to make an S-corp election. However, not every Illinois business entity will qualify to make the election. There are a number of requirements, but corporations and LLCs are commonly ineligible because more than 100 shareholders or members exist or all owners fail to agree on making the election.
Filing IRS Form 2553
It is important to remember that you can only make the election for S-corp status by filing your request with the IRS. The IRS will review your corporation’s or LLC's request and will make a determination whether to accept or deny the application within 60 days. Your legal document preparation service can help with this election.