What is an S Corporation, S corp Requirements, S Corp Tax Return, S Corporation in the USA, Ebizfiling

A complete guide on “What is an S Corporation in the USA?”

S Corporation – What is S Corporation in the USA? S Corp Requirements and information on S Corp Tax Return


The election of S corporation status by a business entity is referred to as S corp creation. S corporations (abbreviated as S corp) are a hybrid business structure that combines the liability protection of a corporation with the pass-through taxation of a partnership or limited liability company. Although the rules for incorporating an S company differ from state to state, they all follow a similar set of steps. In this article information on “What is an S Corporation in the USA?” S corp Requirements And information on S Corp Tax Return.

What is an S Corporation in the USA?

An S corporation is a corporate structure that allows it to pay less tax than other forms of corporations. This is accomplished by allowing shareholders to file their taxes using the company’s profits and losses. An S company must register with the Internal Revenue Service, but not every firm qualifies, and those that do must follow certain guidelines.

Advantages of S Corporation in the USA

  • Limited liability protection is provided to company executives, directors, shareholders, and workers.

  • Elimination of double taxation on income.

  • Even if the owner departs or dies, the company continues to operate.

  • Tax filing is only required once a year.

Disadvantages of S Corporation

  • Only if an entity is a legal resident of the US can it choose the S Corporation structure.

  • In an S Corporation, the number of stockholders is limited to 100.

  • Mistakes in the different filing requirements can result in the s corp status being terminated unintentionally.

  • Employee and shareholder payments could be made in the form of salary or dividends. The IRS scrutinises that distribution more closely since they are taxed differently.

Information on S Corp Tax Return

S Corporations must nevertheless declare their revenues to the federal government and file tax returns, despite the fact that they are generally free from corporate taxes.


An S corporation’s tax return is called Form 1120-S. The profits, losses, dividends, and other distributions the corporation has passed on to its shareholders are reported on Form 1120-S, which is frequently accompanied by a Schedule K-1, which delineates the percentage of company shares owned by individual shareholders.


A company must submit Form 1120-S if it elects S corporation status (and the IRS accepts that election). The form must be submitted by the 15th day of the third month following the fiscal year’s conclusion.

S Corp requirements for Formation

  • Eligibility

  1. Shareholders between 1 to 100, not more than that to form a S Corporation.

  2. All shareholders must agree to a S corp election.

  3. Individuals, estates, and trusts maybe shareholders, but non-residents, partnerships, and companies are not.

  4. There should only be one type of stock.

  5. Choose a tax year that is agreeable to you.

  6. Must not be a financial institution that accounts for bad debts using the Section 585 reserve system, an insurance firm that pays taxes under Sub chapter L, a possessions corporation, or a current or former Domestic International Sales Corporation (DISC).

Important Note: You will lose your S corporation tax status and revert to the less favourable tax status of a regular business if any of these standards are not completed at any moment.

  • Registration Process for S Corporation in the USA

The following procedures must be followed in order to form an S corporation:

  1. Choose a business name and double-check that it is not already in use by another company in your state.

  2. Send the Secretary of State the Articles of Incorporation.

  3. If your state requires it, create corporation by-laws.

  4. Minutes of every shareholder and board meetings should be kept.

  5. Fill out IRS Form SS-4 to obtain an Employer Identification Number (EIN).

  6. If necessary, apply for state and local permits.

Form 2553 Submission

You must complete and submit Form 2553 to the IRS within two months and 15 days of the start of your chosen tax year, or any-time during the tax year before your S corporation’s first effective tax year, after incorporating your corporation. When filling out Form 2553, ensure to include the following information:

  1. Name of your business

  2. EIN number and address of your company

  3. The state in which your business is incorporated

  4. The effective date of the S corporation election is the date of formation.

  5. Details on the shareholders

  6. Information on the fiscal year

  7. All shareholders’ signatures are required

Your S corporation tax status will be in force once your application is approved until it is withdrawn or terminated. If you fail to meet all of the S corporation’s requirements, your company’s corporate status and liability protection will be terminated, making your assets vulnerable to confiscation.


S corporation in the USA are a frequent sort of legal entity that small firms are advised to use. They combine the tax benefits of partnerships with the restricted liability protections offered by corporations. They are a type of corporate-lite structure that is easier to set up and operate than traditional C corporations.

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Author: zarana-mehta

Zarana Mehta is an MBA in Finance from Gujarat Technology University. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Creative writing. She is currently working as Content Writer at Ebizfiling.

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