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Delaware Sub "S" Corporation

What is a Sub-Chapter "S" Corporation ?

office4The Sub-Chapter “S” Corporation is reserved for US citizens filing a personal tax return with the IRS. A non-qualified, non-US citizen is not entitled to the benefits afforded with a Sub “S”.

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 15th. you must file an IRS Form 1120S. To qualify as an "S" corporation, you must be a US citizen or a qualified resident filing a personal tax return with the IRS.

After you receive our corporate package, you have 90 days to file IRS Form 2553 to elect to be a sub-chapter "S" corporation. 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. We do offer the service to file the form 2553 on your behalf.

To be qualified as an" "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.

What is a Sub-Chapter "S" Corporation?

The Sub-Chapter “S” Corporation is reserved for US citizens filing a personal tax return with the IRS. A nonqualified, non-US citizen is not entitled to the benefits afforded with a Sub “S”.

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 15th, you must file an IRS Form 1120S. To qualify as an "S" corporation, you must be a US citizen or a qualified resident filing a personal tax return with the IRS.

After you receive our corporate package, you have 90 days to file IRS Form 2553 to elect to be a sub-chapter "S" corporation. 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. We do offer the service to file the form 2553 on your behalf.

To be qualified as an" "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.

Delaware "S" Corporation Offer:

Reserved for US citizens filing a US tax return with the IRS

Provide personal liability protection for owners

Income/loss passed directly to shareholders through a K-1

Membership is restricted to 100 shareholders

How to File as an "S" Corporation

To become an " S" Corporation, you must know the mechanics of filing for this special tax status. Your first step is to form a general 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

"S" Corporations avoid this "double taxation" (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the shareholders. However, like standard corporations (and unlike some partnerships), the "S" Corporation shareholders are exempt from personal liability for business debt.

"S" Corporation Restrictions

To elect "S" Corporation status, your corporation must meet specific guidelines. As a result of the 1996 Tax Law, which became effective January 1, 1997, many of these qualifying guidelines have been changed. A few of these changes are noted below: 

Prior to the 1996 Tax Law, the maximum number of shareholders was 35. The maximum number of shareholders for an "S" Corporation has been increased to 75.

Previously, "S" Corporation ownership was limited to individuals, estates, and certain trusts. Under the new law, the stock of an "S" Corporation may be held by a new "electing small business trust." All beneficiaries of the trust must be individuals or estates, except that charitable organizations may hold limited interests. Interests in the trust must be acquired by gift or bequest -- not by purchase. Each potential current beneficiary of the trust is counted towards the 75 shareholder limit on "S" Corporation shareholders.

"S" Corporations are now allowed to own 80 percent or more of the stock of a regular "C" corporation, which may elect to file a consolidated return with other affiliated regular "C" corporations. The "S" Corporation itself may not join in that election. In addition, an "S" Corporation is now allowed to own a qualified subchapter "S" subsidiary." The parent "S" Corporation must own 100 percent of the stock of the subsidiary. 

Global Corporate Services offers Sub "S" Filing if you prefer not to complete the form yourself. Refer to our fee schedule cart for current cost to file.

Before deciding which type of corporation best suits your business needs, always consult with your legal or financial advisors. Global Corporate Services, Inc. is a registered agent in the State of Delaware and does not offer legal or tax advice. We are here to help you start your new business as quickly and cost effectively as possible.

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