| The corporate entity is a very popular one with most | | | | Assuming you decide to form an "S" corporation, it is |
| businesses. Although traditional "C" corporations are | | | | important to know the application process with the IRS |
| frowned upon for small businesses, "S" corporations | | | | can be a bit tricky. The primary issue is the timing of |
| are viewed more favorably. | | | | the filing. All and all, you want to file as soon as you |
| So, just what are "S" and "C" corporations? The | | | | have your normal EIN number. If not, you fall into that |
| technical answer is they different classifications of | | | | strange world of IRS time ranges and periods. Let's |
| corporations from both a legal and tax aspect. For | | | | take a closer look. |
| instance, a "C" corporation can have as many | | | | The IRS has made the "S" designation form a |
| shareholders as it can find while an "S" entity is limited | | | | mysterious one. Filling out the form is fairly simple. Filing |
| to less than 75. | | | | it is not. You must file the form within 2 ½ |
| While there are plenty of technical legal issues, the "S" | | | | months of the beginning of the corporation's tax year. |
| versus "C" choice tends to boil down to a tax question. | | | | If you do not, you must wait until the next year to do |
| As with all tax questions, it is not a simple one per se. | | | | so. |
| One has to look at issues related to the initial finances | | | | Reading that restriction as any normal human being |
| of the corporation as well as where the entity will | | | | would, you might expect it to mean that only |
| ultimately be positioned. For instance, if the intention is | | | | corporations filing the "S" designation before March |
| to take a corporation public in a few years, one has to | | | | 16th each year would be approved. After all, January |
| keep in mind a "C" corporation is the only version that | | | | 1st is the first day of each tax year, right? |
| can go public. | | | | As with many tax issues, this one is mystic, but not |
| At the end of the day, a majority of businesses end | | | | fatal. What the instructions really mean is the tax year |
| up going with the "S" designation. The "S" designation | | | | starts on the first day the corporation is formed, does |
| refers to sub-chapter S of the corresponding section | | | | businesses or pays a salary. As such, a corporation |
| of the tax code on corporate taxation. As a general | | | | formed on July 1st has until September 16th to file the |
| rule, a "S" corporation is treated similar to a partnership | | | | "S" designation. |
| with the finances of the corporate entity passing | | | | Filing for your "S" tax designation can be confusing. |
| through to the shareholders in the form of K-1 tax | | | | The best way to avoid getting into a mess is to file it |
| returns. The shareholders then report the tax | | | | as soon as possible after the corporation is formed. |
| information on their personal returns. | | | | By taking this approach, you avoid all the timing issues. |