New Jersey S Corporation: Everything You Need to Know
A New Jersey S corporation is a company that has elected S corporation taxation with the IRS.3 min read
2. S Corporation Filing Dates and Forms
3. Tax Rates
4. Revoking an S Corporation Status
5. Reporting Gains
A New Jersey S corporation is a company that has elected S corporation taxation with the IRS. This means that the individual shareholders will be taxed on business income instead of the corporation.
New Jersey S Corporation Introduction
Corporations in New Jersey can be treated as an S corporation based on Chapter 173, P.L. 1993. S corporation status has been available since July 7, 1993.
Form CBT-2553 will be used to:
- Be treated as an S corporation in New Jersey.
- Be treated as a New Jersey QSSS.
- Report changes in your corporation's shareholders.
Besides New Jersey, states that require both IRS and state level filing for S corporation status include:
- New York
S Corporation Filing Dates and Forms
The filing date for electing S corporation status in New Jersey is a month after the federal due date. All shareholders must agree to elect S corporation status before the election will be considered valid.
After filing Form CBT-2553, you will be notified within 30 days whether your S corporation election has been approved. After your election has been approved, your company will retain its New Jersey S corporation status as long as it is an S corporation at the federal level.
If your company was not required to acquire a Certificate of Authority before doing business in New Jersey, you will need to complete and submit both a New Jersey S Corporation Certification Form and a CBT-2553 form to elect S corporation status. By filing the Certification Form, you are stating that you are not doing any business that requires a Certificate of Authority.
Electing small business trusts (ESBT) that are federal S corporation shareholders can elect S corporation status in New Jersey by submitting the Subchapter S Election Form after having the form signed by a trustee.
If your corporation is a federal S corporation but you choose not to elect New Jersey S corporation status, you would need to pay ordinary corporate tax rates, which can be 6.5 percent, 7.5 percent, or 9 percent. The net share of S corporation income of resident shareholders will be taxed.
Before the S corporation election can be valid, all shareholders of the corporation must agree to the State requirements for this type of corporation. For every shareholder that doesn't consent to New Jersey rules, the corporation will pay the highest marginal tax rate on New Jersey allocated S corporation income.
Revoking an S Corporation Status
After electing S corporation status, you can revoke this election for a limited period of time, generally in the first tax year where you would be taxed as an S corporation.
If you want to revoke your S corporation election, you will need your shareholders to sign a letter of revocation. These shareholders must own at least 50 percent of your corporation's shares on the day the letter is filed or on the last day of the first year where you will be taxed as an S corporation.
With the letter of revocation, you should include a copy of your initial S corporation election. After revoking your S corporation election, you are required to wait five years before you can attempt to elect this status again.
Your corporation's undistributed earnings will not be taxed at this point. However, any earnings your corporation possessed before your S corporation election effective date will be considered New Jersey income, meaning the dividends can be taxed after they are allocated to shareholders. Net pro rata share of S corporation income includes income and losses.
If an S corporation has a net loss, they cannot deduct this loss against other types of incomes. This practice is prevented by the Gross Income Tax Act. On their NJ-1040, resident shareholders must report their pro rata share of federal corporate income that is not being allocated to New Jersey.
S corporations do not need to report built-in gains from years before electing this tax status. Shareholders who are not residents of New Jersey do not have losses or gains.
Selling S corporation stock is considered an intangible asset transaction, and nonresidents will not be taxed for this type of transaction for the purpose of gross income tax. If any of your S corporation's shareholders are resident aliens, they are liable for New Jersey personal income taxes.
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