What is an S Corporation?
An S Corp is a distinct type of corporation that allows the shareholders of the company to claim their portion of company earnings on their individual income returns.
What is a Sole Proprietor?
A sole proprietor is owned by an individual or a husband and wife. The owner is not required to file any paperwork with the state or the IRS to begin operations.
How to Change from a Sole Proprietor to an S Corporation?
1) Before you switch to an S Corporation it is important to ensure your business will qualify according to IRS requirements. (Do your research)
2) Apply with the state in which you live.
3) It is important to follow the instructions very carefully when preparing paperwork.
4) You will need to submit a 2553 Form. Instructions can be found at irs.gov.
· Be sure you have each shareholder sign the form.
· Maximum number of shareholders – 100
· Must file this form within 75 days of filing your corporation paperwork.
5) Apply for a new Employment Identification Number (EIN). This is required because you will not be the single owner of your business. You now have partners.
Professor Tax USA wants to provide you with quality information to help you make informed decisions for your business. The more educated you are on a subject the easier it is to make your decision either way. If you would like to contact “The Professor” regarding any tax, bookkeeping or accounting questions, feel free. If you would like a free consultation, he will gladly meet with you regarding any of your small business needs.
