S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
(1) Be a domestic corporation
(2) Have only allowable shareholders including individuals, certain trusts, and estates. These may not include partnerships, corporations or non-resident alien shareholders.
(3) Have no more than 100 shareholders
(4) Have only one class of stock
(5) Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
In order to become an S corporation, the corporation must submit Form 2553 Election by a Small Business Corporation (PDF) signed by all the shareholders. See the instructions for Form 2553 for all required information and to determine where to file the form.
To view the instructions for Form 2553, click here.