How to Set up an S Corp

How to Set Up an S Corp

What is an S corporation?

An S Corporation is a corporation that is treated as a pass-through entity for federal tax purposes through an election to be considered an S corporation made with the Internal Revenue Service (IRS). What does it mean?

An S corporation is created as a corporation by filing Articles of Incorporation with the Secretary of State or similar governing body. It issues stock and is governed as a corporation, with directors, officers, and shareholders working in the same way as their counterparts in the C corporation. The owners (shareholders) have the same liability protection as a C corporation's shareholders. Personal assets of an S corporation shareholder, such as personal bank accounts, cannot be seized to meet corporate liabilities.

However, an S corporation passes most of its income and loss items to shareholders like a sole proprietorship or a partnership. There is no "double taxation," once at the corporate level and again at the individual shareholder level, unlike a regular corporation. Each shareholder is subject to the income (or losses) passed to him or her by his or her own individual tax rate.

The steps to set up an S Corp include the following:

Incorporate your business.

Meet eligibility requirements.

File form 2553 with the IRS.

Gain S Corp status.