What are the benefits of an S Corporation in Florida?
It goes without saying that tax matters are among the most important considerations for anyone starting a new business, or choosing a business structure. With this in mind, one option to consider in Florida is forming an S corporation. However, there are a couple of things to keep in mind. One is that there are specific rules for formation. The other is that although doing so yields significant tax benefits, there are some disadvantages as well. Having said that, here’s what you should know about starting an S corporation in Florida.
Before you can create an S corporation, your business must already be incorporated in accordance with the applicable state laws. This means that you previously created a “C corporation” by filing articles of incorporation and relevant information with the Florida Department of State, Division of Corporations.
The next step is to change the company from a C corporation to an S corporation by submitting Form 2553 to the Internal Revenue Service (IRS). It is important to note that the form must be filed with the IRS by March 15 for the S corporation election to take effect, if approved, that year. For newly created corporations, there is a 75-day window in which to file the form and potentially obtain S corporation status for the current year.
But there’s also a catch. The IRS will not accept an S corporation election unless the company meets certain requirements. To be eligible to make an S corporation, the company must: be a U.S. corporation; have shareholders limited to U.S. residents, U.S. citizens, and certain organizations; have a limited number of shareholders; and have only one class of stock, which may carry different voting rights.
As we’ve already mentioned, successful classification as an S corporation yields significant tax benefits. Unlike C corporations, S corporations are not taxed directly. Instead, they are “pass-through” tax entities. In other words, income earned by or losses sustained by the business are reflected only in personal income taxes.
The other benefits are greater credibility due to the complexity over LLCs as well as ease of transferring ownership.
The disadvantages of an S corporation are the need for initial incorporation, which can be time-consuming and expensive; greater IRS scrutiny; and limitations on the number of shareholders and class of stock.
Clearly, there are lots of things to consider when choosing a business structure. Depending on your circumstances, selecting the one with the fewest tax impacts may the best decision. However, forming an S corporation to avoid double taxation isn’t always possible, nor is it the best choice for everyone. Click this link for information about why you should incorporate in Florida and what to do if your business is being sued. For more information about forming an S corporation or to learn if this is the right option for your business, contact the Fort Lauderdale law firm of Eskander Loshak LLP at (954) 334-1122 for a free consultation.