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S Corp tax CPA answers What is an S Corp? | how to setup an S Corporation business | changes to Form 2553 instructions | Form 8332 for LLCs

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Form 2553 instructions change in 2013. Call (910) 399-2705 for a free CPA consult on any S Corp issue.

New clients sometimes ask about the advantages of running an S Corporation business. Hi, I’m Gary Bode, a CPA who runs our tax and accounting practice as an S Corporation. So I stay current on S Corporations issues. We’ve got a virtual office to offer service wherever you’ve setup your S Corp. I’ll cover Form 1120-S, Form 8332, Form 2553 and Schedule K-1.

What is an S Corporation?

Per the IRS:

S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.

“S Corp shareholders don’t pay self-employment tax on S Corporations distributions. But this is a hot issue for the IRS.”
– Gary Bode, S Corp CPA

Steps in S Corp tax returns

  • The S Corp files Form 1120-S.
  • Then all that information from Form 1120-S distills down to Schedule K-1.
  • Shareholders use Schedule K-1 to prepare their IRS Form 1040.
  • Remember your State filing requirements too.

Can your LLC elect to be taxed as a subchapter S Corp?

Yes. For my clients that want to run an S Corporation business I suggest becoming a LLC and then electing to be taxed as an S Corp. Why? You can later elect to be taxed as a Partnership without closing the LLC. First file IRS Form 8332, Entity Classification Election. This turns your LLC into a C Corporation for tax purposes. And then file IRS Form 2553, Election by a Small Business Corporation.

How to set up an S Corporation

  • Setup a Corporation with your State’s Secretary of State.
  • Then file Form 2553, Election by a Small Business Corporation.

Form 2553 Instructions

Use Form 2553 to turn your Corporation into an S Corp. Getting the IRS to recognize the Form 2553 election is tedious. But not because the S Corporation business doesn’t qualify. There just seems to be a disconnect in the IRS systems. So, even when a timely Form 2553 is faxed to the IRS, CPAs often must re-file Form 2553. But then we’re seeking acceptance under one of the multiple Revenue Procedures available for late filing. However the new IRS Revenue Procedure 2013-30 simplifies late filing.

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