Before we dive into how to file to become an S-corporation, let’s take a look at what an S-corporation is, exactly, and why you may want to establish this type of business entity for your company. S-corporations are similar to partnerships, or sole proprietorships, at least in terms of how the company will affect you financially.
S-corporations are corporations that have pass-through taxation—income, losses, deductions, and credits are passed through to shareholders, and those shareholders report the information on their personal tax returns and are assessed at their individual income tax rates.
This limits double taxation on corporate income, and depending on the nature of your business, it can help mitigate financial loss, especially during the critical early stages of establishing a business.
Here’s what you need to qualify for S-corporation status:
S Corporations may not be ineligible corporations, like certain financial institutions, insurance companies, or domestic international sales corporations
How to File to Become an S-Corporation
To file to become an S-corporation you should first submit Form 2553 Election by a Small Business Corporation. It must be signed by the shareholders and submitted to the proper state and federal agencies.
To file to become an S corporation, you’ll also have to register articles of incorporation, which are filed in the state where you plan to do business. Each state has different rules and regulations with regard to articles of incorporation and corporate taxation forms. This is why some businesses choose to incorporate in certain business-friendly states, like Delaware.
Now that you know how to file to become an S corporation, all you have to do is fill out the paperwork and get started to apply for an ein!