Creating an S corporation is a two-step process. First, the business must incorporate according to the laws of Florida as a regular corporation, commonly known as a C corporation. Then you change the C corporation to an S corporation by making a special tax election with the Internal Revenue Service. Businesses choose to elect S corporation status for income tax purposes.
S Corporation Taxation
The S corporation election changes how the company is taxed. A C corporation must pay corporate income taxes each year, and when it makes distributions to the individual owners, they must include that amount as dividend income in the year the payment was received. So, effectively, the C corporation income is taxed twice. With an S corporation, the income of the business passes directly to individual shareholders according to their proportionate ownership shares. As a result, the shareholders include their share of the business' income on their personal tax returns even if the company does not make any distributions for the year.
Read More: Can an LLC Become a C Corporation Years Later?
S Corporation Requirements
Not all C corporations qualify to make the S corporation election. To qualify, your corporation must be a U.S. corporation; have only U.S. residents, U.S. citizens, and qualifying organizations such as non-profits as shareholders; have 100 or fewer shareholders; and have only one class of stock, which may carry different voting rights. Also, the corporation cannot be found ineligible for S status simply because of the type of business it is.
Incorporating In Florida
To incorporate in Florida, you must file articles of incorporation for your business with the Florida Department of State, Division of Corporations. The articles of incorporation must contain your company name, address, corporate purpose, the number of shares the corporation may issue, the name and address of the Florida registered agent and the name and address of the incorporator. The company name must include words that designate a corporation, such as Corp.; Incorporated; Inc.; Company; or Co. You can also enter the names of the first directors and officers of the corporation. File the articles of incorporation by mailing the form with the applicable fee to the Florida Department of State or using an online legal documentation service for assistance.
S Corporation Election
Once you have legally incorporated your business in Florida, it is officially a corporation. Assuming your company meets the S corporation requirements, you can make the S corporation election any time. To make the election, file Form 2553 with the IRS. This form requires basic information about the company, including the name, address, employer identification number, state of incorporation, date of incorporation and the corporation's fiscal year. Every shareholder must sign IRS Form 2553 because you must have unanimous approval to make the S corporation election.
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