Can You Fill Out a 2553 Before the Articles of Incorporation?

By Mary Jane Freeman

A business entity that wishes to become an S corporation must file Form 2553 with the IRS. However, before a business can submit this form, it must first qualify for S corporation status and must file articles of incorporation with the state to incorporate the business.

Articles of Incorporation

People who want to form a corporation must complete and file articles of incorporation with their state regulatory agency, which is usually the secretary of state. While laws vary among states, the information contained in the articles typically includes the business name and address, the description of business purpose, the name and address of the registered agent and incorporator, and the number of shares the corporation is authorized to issue.

S Corporation Status

Corporations are separate and distinct legal entities from their owners -- the shareholders. Traditional corporations are C corporations and are typically taxed twice. Corporations first pay taxes on earned profits and again at the shareholder level when shareholders pay taxes on the dividends they receive. To avoid this double taxation, some corporations elect to become S corporations for tax purposes. As an S corporation, a corporation is not taxed directly, but rather its profits and losses are passed through to the shareholders, who pay taxes on their personal income tax returns. To change its status from a C-corp to an S-corp, a corporation must file Form 2553, Election by a Small Business Corporation, with the IRS. However, it must qualify as an S corporation before doing so. Generally, this requires that the business entity is already a corporation, has no more than 100 shareholders and has one class of stock.

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How to Convert to S Corp From Sole Proprietor



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How to Convert an S Corporation

S corporations elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. An S corporation is taxed under Subchapter S of the Internal Revenue Code, meaning that the corporation pays almost no federal income taxes. If a corporation qualifies for S corporation status, it may obtain S corporation tax status by filing Form 2553 with the IRS. In some cases, however, it may be advantageous to revoke S corporation status -- for example, if the company wishes to add shareholders so that the number of shareholders exceeds 100, it would no longer qualify for S corporation status.

The Steps in Starting an S-Corp

An S corporation is simply an ordinary corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code. To start an S corporation, you must form a corporation that qualifies under IRS rules and then apply for S corporation status with the IRS. The IRS routinely approves applications from qualified entities. Limited liability companies may also elect to be taxed as S corporations if they qualify.

Tax Consequences of Converting a C-Corp to an S-Corp

Corporations are business entities formed under state law that exist separately from their owners. An S corporation is simply a C corporation that has elected to be taxed as a pass through entity. Converting from a C-corp to an S-corp has significant tax implications, which include potentially lowering the overall tax burden on the shareholders, but also changing who reports the income each year and limiting when the income can be reported on the shareholder's tax returns. However, an S-corp must meet several criteria, including having less than 100 owners, only having U.S. resident or U.S. citizen individuals and certain entities as shareholders, and not having more than one class of stock.

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