Despite Warnings, It is Not Too Late to Form an S Corp in 2007
The March 15 deadline to elect S corp status has passed, but there is good news for newly formed entities that wish to be taxed as an S corp this year.
Reston, VA, April 30, 2007 --(PR.com)-- Despite warnings of a March 15 deadline to elect S corp status with the Internal Revenue Service, it is not too late to form an S corp in 2007.
Corporations that wish to be taxed as S corps in order to obtain "pass-through" tax treatment are required to make the special tax classification election by filing IRS Form 2553 with the Internal Revenue Service. The election must be made "before the 16th day of the third month" of the tax year in which the election is to take effect. For most corporations, this means that Form 2553 should have been filed with the IRS no later than March 15 in order to obtain tax treatment as an S corp this year.
"If the form is filed and accepted by the IRS after March 15, the S corp status will not take effect until next year," said Chrissie Mould, a senior incorporation specialist at online incorporation service company MyNewVenture.com, "and any would-be S corp that has not filed the form by the deadline will be taxed as a regular "C" corporation--with taxable income subject to corporate income tax rates--this year."
Limited liability companies also have the option of electing to be taxed as S corps. However, because the same deadline applies, any limited liability company ("LLC") that does not file Form 2553 in time will be taxed a disregarded entity/sole proprietorship (if the LLC has only one owner) or as a partnership (if the LLC has two or more owners) by default.
But what if you haven't formed a corporation or LLC yet? Is it too late to elect S corp status? According to Mould, the answer is no. "For newly formed entities, it may not be too late to make the S corp election. The IRS' deadline for the election is 'before the 16th day of the third month of the tax year', so the exact deadline for a newly formed entity will depend on its date of incorporation," Mould explained.
For an existing company whose fiscal year is based on the calendar year, the tax year begins on January 1, and the 16th day of the third month of its tax year is March 16. However, for a new company that is formed later in the year, its initial tax year begins on the date of incorporation, and the 16th day of the third month of its initial tax year would translate into the 16th day of the third month after the date of incorporation.
For example, if ABC Corporation is formed on May 1 of this year, its initial tax year begins on May 1 to coincide with its date of incorporation. If ABC Corporation wishes to be taxed as an S corp this year, it must file IRS Form 2553 before July 16 (in other words, the deadline would be July 15); this is because July is the third month of its initial tax year.
The same would apply for an LLC that wishes to be taxed as an S corp. If XYZ LLC is formed on June 15 of this year, it must file IRS Form 2553 before August 16 (in other words, the deadline would be August 15), because August is the third month of its initial tax year. Note: In order to elect S corp status, LLCs were once required by the IRS to file IRS Form 8832 to elect to be taxed as a corporation as a requisite to filing IRS Form 2553 to elect to be taxed as an S corporation. This is no longer the case; LLCs need only file IRS Form 2553 in order to elect S corp status.
MyNewVenture.com offers IRS Form 2553 preparation service for corporations and limited liability companies that wish to elect the S corp tax classification. The service is available to both new and existing companies. Clients who place an order for IRS Form 2553 preparation services will receive the prepared form along with easy-to-follow instructions for filing the form with the IRS.
About MyNewVenture.com
MyNewVenture.com (http://www.mynewventure.com) helps entrepreneurs quickly and easily start businesses at a fraction of the cost of typical legal fees. The company's knowledgeable incorporation specialists form corporations and limited liability companies nationwide. As an advocate of entrepreneurs, MyNewVenture.com also provides information and resources for starting a business. MyNewVenture.com is headquartered in Northern Virginia's burgeoning business district known as the Dulles Corridor just outside Washington, DC.
###
Corporations that wish to be taxed as S corps in order to obtain "pass-through" tax treatment are required to make the special tax classification election by filing IRS Form 2553 with the Internal Revenue Service. The election must be made "before the 16th day of the third month" of the tax year in which the election is to take effect. For most corporations, this means that Form 2553 should have been filed with the IRS no later than March 15 in order to obtain tax treatment as an S corp this year.
"If the form is filed and accepted by the IRS after March 15, the S corp status will not take effect until next year," said Chrissie Mould, a senior incorporation specialist at online incorporation service company MyNewVenture.com, "and any would-be S corp that has not filed the form by the deadline will be taxed as a regular "C" corporation--with taxable income subject to corporate income tax rates--this year."
Limited liability companies also have the option of electing to be taxed as S corps. However, because the same deadline applies, any limited liability company ("LLC") that does not file Form 2553 in time will be taxed a disregarded entity/sole proprietorship (if the LLC has only one owner) or as a partnership (if the LLC has two or more owners) by default.
But what if you haven't formed a corporation or LLC yet? Is it too late to elect S corp status? According to Mould, the answer is no. "For newly formed entities, it may not be too late to make the S corp election. The IRS' deadline for the election is 'before the 16th day of the third month of the tax year', so the exact deadline for a newly formed entity will depend on its date of incorporation," Mould explained.
For an existing company whose fiscal year is based on the calendar year, the tax year begins on January 1, and the 16th day of the third month of its tax year is March 16. However, for a new company that is formed later in the year, its initial tax year begins on the date of incorporation, and the 16th day of the third month of its initial tax year would translate into the 16th day of the third month after the date of incorporation.
For example, if ABC Corporation is formed on May 1 of this year, its initial tax year begins on May 1 to coincide with its date of incorporation. If ABC Corporation wishes to be taxed as an S corp this year, it must file IRS Form 2553 before July 16 (in other words, the deadline would be July 15); this is because July is the third month of its initial tax year.
The same would apply for an LLC that wishes to be taxed as an S corp. If XYZ LLC is formed on June 15 of this year, it must file IRS Form 2553 before August 16 (in other words, the deadline would be August 15), because August is the third month of its initial tax year. Note: In order to elect S corp status, LLCs were once required by the IRS to file IRS Form 8832 to elect to be taxed as a corporation as a requisite to filing IRS Form 2553 to elect to be taxed as an S corporation. This is no longer the case; LLCs need only file IRS Form 2553 in order to elect S corp status.
MyNewVenture.com offers IRS Form 2553 preparation service for corporations and limited liability companies that wish to elect the S corp tax classification. The service is available to both new and existing companies. Clients who place an order for IRS Form 2553 preparation services will receive the prepared form along with easy-to-follow instructions for filing the form with the IRS.
About MyNewVenture.com
MyNewVenture.com (http://www.mynewventure.com) helps entrepreneurs quickly and easily start businesses at a fraction of the cost of typical legal fees. The company's knowledgeable incorporation specialists form corporations and limited liability companies nationwide. As an advocate of entrepreneurs, MyNewVenture.com also provides information and resources for starting a business. MyNewVenture.com is headquartered in Northern Virginia's burgeoning business district known as the Dulles Corridor just outside Washington, DC.
###
Contact
MyNewVenture.com
Chrissie Mould
800-438-0558 x701
www.mynewventure.com
Chrissie Mould
800-438-0558 x701
www.mynewventure.com
Contact
Categories