The S Corp Election

An S Corp is a corporation that elects and is eligible to choose S Corporation status.  There are advantages and disadvantages of selecting S Corp status for your eligible entity, and those should be considered carefully with your financial planning team, including your CPA.  Generally, an S Corp is a corporation that does not pay income taxes.  Rather, the income and deductions of the business are passed through to its shareholders.  In return, the shareholders report the income and deductions on their individual tax returns. There are a number of rules inherent in this election, but today I want to focus solely on how to make the election. 

Making the Election

The actual election for S Corp status is accomplished by filing Form 2553, Election by a Small Business Corporation.  The election must be made by the 15^th day of the 3^rd month of its tax year in order for the election to be effective beginning with the year made.  A few simple examples will clarify what that language means.

Example #1 – Entity XYZ was formed on and began operations on June 1, 2012.  In order for their S election to be filed timely and effective June 1, 2012, Form 2553 should be filed by August 15, 2012.

Example #2 –Entity XYZ was formed on and began operations on June 1, 2010.  They want their S election to be effective on January 1, 2011.  In order for their S election to be filed timely and effective January 1, 2011, Form 2553 should be filed by March 15, 2011.

Did you miss your election timeframe?

There are methods of requesting IRS relief for a late S election and your CPA should be consulted in order to carry out said late elections.  Most commonly, a late election can be filed with filing of the tax return and use of the reasonable cause exclusion as detailed in Revenue Procedure/Private Letter Rulings issued by the IRS.  Again, your CPA should be consulted closely to carry out this late election. 

As you analyze your filing status, the decision to file as an S Corp is one that should be weighed carefully with proper consultation.  There are numerous eligibility requirements that must be met.  Lastly, adhere to the timelines provided above.  If you are considering S Corp status for your entity and need assistance in filing your election or making the decision, please contact our Firm.

brad@mcarthurco.com
704.544.8429

Happy MLK Day!

From a sermon Dr. King preached at the Temple of Israel of Hollywood:

Each of us lives in two realms, the "within" and the "without." The within of our lives is somehow found in the realm of ends, the without in the realm of means. The within of our [lives], the bottom -- that realm of spiritual ends expressed in art, literature, morals, and religion for which at best we live. The without of our lives is that realm of instrumentalities, techniques, mechanisms by which we live. Now the great temptation of life and the great tragedy of life is that so often we allow the without of our lives to absorb the within of our lives. The great tragedy of life is that too often we allow the means by which we live to outdistance the ends for which we live.

And how much of our modern life can be summarized in that arresting dictum of the poet Thoreau, "Improved means to an unimproved end?" We have allowed our civilization to outrun our culture; we have allowed our technology to outdistance our theology and for this reason we find ourselves caught up with many problems. Through our scientific genius we made of the world a neighborhood, but we failed through moral commitment to make of it a brotherhood, and so we’ve ended up with guided missiles and misguided men. And the great challenge is to move out of the mountain of practical materialism and move on to another and higher mountain which recognizes somehow that we must live by and toward the basic ends of life. We must move on to that mountain which says in substance, "What doth it profit a man to gain the whole world of means -- airplanes, televisions, electric lights -- and lose the end: the soul?"

brad@mcarthurco.com

704.544.8429