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IRS Forms 1120 | 1120S | 1065
What is a S Corporation?
Difference between C Corp and S Corp
S corporation limitations
- A S Corp may have over 100 shareholders.
- It’s required to become a domestic business entity.
- The S Corporation is limited to just 1 type of stock.
Qualification for S Corporation
According to the IRS, to qualify for S Corporation status, a business must meet these requirements:
- Have no more than 100 shareholders
- Have Just One class of stock
- Make a national corporation
Have just allowable shareholders — that may include people, certain trusts, and estates, but not partnerships, corporations or nonresident alien investors
Flexity to Pay Yourself
Transfer of Ownership
S Corporation ownership interests are easy to transfer to other owners without inducing substantial tax implications or terminating the corporate thing. An possession transfer of an S Corporation does not require adjustments to land basis or compliance with complicated accounting principles
Limits on Ownership
S Corporations do not have the identical degree of versatility in their ownership arrangement, compared with a C Corporation. S Corps can offer 1 type of stock, which restricts the application to different types of investors. Additionally, the S Corp may only have 100 shareholders (or fewer) and cannot be owned by overseas shareholders or by certain trusts or other corporate entities.
Restraint about Wages and Dividends
One of the wonderful areas of the S Corporation is its flexibility at characterizing income as wages or dividends, but this can also pose challenges. The IRS is always on the lookout for business owners that aren’t fairly or accurately characterizing their obligations of salary, so as an S Corporation proprietor, you’ve got the risk of being asked to re-characterize some of your earnings and pay higher taxes as a result.
Tax Eligibility Mistakes
This really is a rare situation, but it can happen — occasionally, S Corp owners can make mistakes related to their IRS form filing requirements related to stock ownership, election, consent, notification and other areas of running an S Corp, and this may cause the company to lose its S Corporation status.