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What is a Sub-Chapter "S" Corporation ?

With a sub-chapter "S" corporation you can deduct the profits and losses from your corporation on your personal tax return. You will no longer be considered a "C" Corporation. Prior to March 15 you must file an IRS Form 1120-S. To qualify as a "S" corporation, you must be a US citizen or qualified resident filing a personal tax return with the IRS.

After you receive the corporate documents, You MUST elect to be a sub-chapter "S" corporation by filing the IRS Form 2553. All corporations, in any state are filed as "C" corporations; so the "S" corporation has nothing to do with the state where you incorporate. It refers to the way you pay your income tax.

To be qualified as a "S" corporation you must be approved by the IRS. Upon approval by the IRS for this status, you can pass early losses through to the shareholders giving you and your investor a tax write-off against ordinary income, up to the actual amount of money they have invested in the company. Once the corporation turns a profit, the Sub-Chapter "S" status eliminates taxation for the company entirely. The tax liability is passed on to the stockholders.

How to File as a "S" Corporation

To become a " S" Corporation, you must know the mechanics of filing for this special tax status. Your first step is to form a general, close or professional corporation in the state of your choice. Second, you must obtain the formal consent of the corporation's shareholders. This consent should be noted in the corporation's minutes. Once the filing is approved, your company must complete Form 2553, Election by a Small Business Corporation. This form must be filed with the appropriate IRS office for your region. Please consult the IRS instructions for Form 2553 to determine your proper deadline for completing and submitting this form.

Mailing Information:

Internal Revenue Service
Cincinnati, OH 45999
Fax # 859-669-5748

Please be sure to speak with a qualified legal and/or financial advisor if you are not sure about converting to a sub "S". You may address your questions to our Tax and Accounting Services at tax@delawarecorp.us.