Corporations

Can any corporation be an S Corporation?

Any corporation can be an S Corporation, unless it doesn’t meet certain criteria. For example, an S Corporation cannot be owned by another corporation, with certain very narrow exceptions. And sometimes you don’t want your corporation to be an S Corporation, for example, when you are seeking VC investments.

July 12th, 2015|0 Comments

Why is an S Corporation called an S Corporation?

S = “Small”, and, yes, that’s per the Internal Revenue Code.

July 12th, 2015|0 Comments

When is an S Corp election due?

For a corporation to be an S Corporation, the paperwork to make that effective is due no more than two months and 15 days after the beginning of the tax year the election is to take effect (yes, I copied that from the IRS instructions). If you’re really ahead of the game, then anytime during a tax year preceding the year you want it to be in effect. For new corporations, the tax year typically begins on a day other than January 1, unless you formed on that date. So, for example, if your corporation was formed on July 8, then the S Corp election would be due 15 days after September 7, or September 22.

August 10th, 2015|0 Comments

Can I cause my corporation to be an S Corp at the end of the year, after I see how my year has been?

You wish. But no. Congress treats this election as a go-forward business decision, not a look-back election. The good news is that it’s easy to revoke, or even “bust”, the election. But be careful about switching back and forth – as in, things don’t work that way.

August 10th, 2015|0 Comments

I’m causing my corporation to elect to be taxed as an S Corporation. Does my spouse have to sign?

You’re going to get different answers, depending on the advisor you ask, and the state you’re in. Generally, though, best practice is yes, and sometimes required. PS - If you're keeping this a secret from your spouse, then an S Election is not your biggest problem.

August 10th, 2015|0 Comments

Do I need all of the shareholders’ consent for the S Corp election?

Yes. It’s really that simple. Here’s a link to the IRS page that’s chock full of info. PS - Spouses too.

August 10th, 2015|0 Comments

What are the downsides of using an S Corporation?

First, please take a look at this FAQ. Once you understand why you may want to use a C Corporation, you’ll understand several of the reasons that an S Corporation may not work for you. Next, other downsides include not being able to have more than 100 shareholders, and not being able to have non-individual [...]

August 9th, 2020|0 Comments

Does California collect a tax from California S Corporations, in addition to the $800 minimum tax?

Surprise! The minimum annual $800 each corporation (and LLC) is required to pay to the California Franchise Tax Board (the FTB) is only a minimum, not a flat tax. S corporations in California (strictly speaking, every S corporation that has California source income) are required to remit 1.5% of their income to the FTB annually. The [...]

December 14th, 2022|0 Comments

Can partners in a partnership get a W-2 and be “treated like an employee” like they can in an S Corporation?

Short answer: No. Long answer. When you turn one of your employees into a partner, that individual will switch from receiving a W-2 to getting a Schedule K-1. If you want your “partners” to be treated like an employee, then an S Corporation is the preferred approach (after you’ve determined that a C Corporation is [...]

August 9th, 2020|0 Comments

Is my business big enough to justify the additional overhead of a corporation or LLC?

“Big” is a relative term. Size isn’t always the only, or even a significant, element to determining whether you should entity-ize your business. If you run a small business, but it’s a high-risk business, like, for example, a liquor store, then an LLC or corporation is probably a good idea, regardless of your revenue.

July 12th, 2015|0 Comments