How to Make a Start Up Business an S Corporation

S corporations help reduce double taxation on a business.

Creating an S corporation can reduce the amount of taxes you pay each year. Instead of taxing your business as if it were a traditional corporation, the IRS only taxes your income from the business. You can also deduct any losses suffered by the business. Should you decide to sell the business, you will not be taxed as heavily on profits earned from the sale. Depending on the size of your business and its operating costs, an S corporation may be the best business structure choice.

Things You'll Need

• Employer Identification Number (EIN)
• Articles of incorporation
• Form 2553 Election by a Small Business Corporation

Instructions

1. Obtain an EIN (Employer Identification Number) from the Internal Revenue Service. This number will be used on all tax documentation and is necessary when registering your business with the state in which you live.

2. Register your start-up business as a corporation in your state. Only registered corporations can apply for S corporation status. Contact your state's secretary of state's office or department of revenue to register your business name and to file articles of incorporation.

3. Download Form 2553 Election by a Small Business Corporation from the IRS website (see Resources).

4. Present Form 2553 to all shareholders so they can sign it. Fill out the requested tax information before submitting the form to the IRS to apply for S corporation status.

Tips & Warnings

• Maintain copies of all business documentation including EIN verification paperwork, tax forms and business registration forms as you may need to include information from these forms when filing for S corporation status.

• You may not have more than 100 shareholders in an S corporation. Eligible shareholders include individuals, estates and qualifying trusts. Partnerships, corporations and non-resident investors cannot become shareholders in an S corporation.

References

• IRS: S Corporations
• Nolo: S Corporation Facts

Resources

• IRS: How to Apply for an EIN
• IRS: Form 2553