*** As always, please make sure to discuss any tax or legal implications with your tax lawyer. The following is to be used for informational purposes and is not meant to be legal or tax advice for your particular situation.***
State filings are only the beginning for start-up corporations.After determining what type of corporation to form (LLC, S-Corp, partnership, etc), the forming partners must then decide what to do with taxes.
There are two forms that may be used by corporations to elect what standing they want in front of the IRS.First, if a corporation wishes to declare itself a corporation, partnership, or an entity disregarded as separate from its owner, there is Form 8832.Second, if a corporation wishes to declare itself an S-corp, there is Form 2553.
Form 8832 is used to declare what type of entity you want the IRS to treat you as.For example, if you form an LLC but you are the only member, the IRS may treat it as an extension of you if anything goes wrong with your taxes.However, if you make sure you file a Form 8832 to show that you want it to be treated as a separate entity, it could save you on taxes should something happen down the road to your LLC.
Form 2553 is used to by a corporation that elects to be treated as an S-corp under the IRS tax rules.If a Form 2553 is filed, a corporation does not need to file a Form 8832.In order to file a Form 2553, a company must meet the following:
- It must be domestic.
- It can have no more than 100 shareholders.
- Shareholders must be individuals, estates, or exempt organizations.
- No resident aliens are shareholders.
- The corporation only has one class of stock.
- The corporation isn’t a:
- Certain types of banks or thrift institutions;
- Certain types of insurance companies;
- Certain types of corporations which are possessions corporations;
- A domestic international sales corporation or former domestic international sales corporation.
- The corporation will adopt certain tax year changes.
- Each shareholder consents to changes on Form 2553.