S Corporation Florida: Everything You Need to Know
An S corporation in Florida is a business type underneath an umbrella corporation3 min read
2. Benefits of a Florida S Corporation
3. Disadvantages of an S Corporation
4. Qualifications Needed to Open an S Corporation
5. How to Form an S Corp in Florida
6. S Corporation Taxation
Setting up your S corporation in Florida is fairly simple. Its process involves two steps: incorporating as a C corporation, and then choosing the special tax election of an S corporation. This decision is often made for tax purposes and is completed with the IRS.
What Is an S Corporation?
An S corporation in Florida is a business type underneath an umbrella corporation. This business type is able to avoid double taxation of income because it passes corporate credit, losses, and deductions to the company shareholders. An S corporation is formed underneath a C corporation to gain a specific tax status.
This tax status is gained by filing form 2553 with the IRS. An S corporation is known as a Standard Business Corporation. With an S corporation, rather than the business being taxed, the individual shareholders are taxed. This is much like a sole proprietorship or partnership, where taxes apply to individual income tax returns.
S corporations and C corporations share several similarities:
- Both corporation types protect the business owners from personal liabilities and debts.
- The same Articles of Incorporation are filed with the state for both types.
- Both business types must hold annual meetings with directors and shareholders.
A corporation cannot have more than 75 shareholders to qualify for S corporation status. In addition, all shareholders must agree to be an S corporation in writing.
Benefits of a Florida S Corporation
The result for S corporations is higher earnings. This is because S corporations are trusted more than an LLC, thanks to the credibility associated with them. Florida subchapter S companies are more challenging to obtain and demand more effort to maintain it.
One of the most valuable factors of an S corporation is its pass-through taxation process. The tax system referred to as a "pass-through" gives the corporation the ability to avoid federal taxes. Florida S corporation taxes go directly to shareholders and are reported on their income tax. There are hardly any tax consequences and few hoops to jump through when to it comes to transferring ownership of an S corporation.
Disadvantages of an S Corporation
S corporations can only have one class of stock, and there is a limit to the number of shareholders; the cap is 100. Since shareholders receive the taxes in an S corporation, it is essential to keep records thorough and accurate. The IRS reviews the companies that file a Subchapter S in Florida more carefully. It is mandatory for companies that begin as an S corporation in Florida to become incorporated, even though this process can be costly and demanding.
Qualifications Needed to Open an S Corporation
When opening an S corporation, one should ensure the S corporation is domestic. The specific shareholders allowed to be included in an S corporation are:
- Some trusts
- Nonresident alien shareholders
Only one class of stock is allowed, and the total amount of shareholders of the corporation is limited to 100.
How to Form an S Corp in Florida
Florida companies should incorporate as a regular C corporation first, and then make a tax election to become an S corporation with the IRS. It is key to:
- Complete your Articles of Incorporation
- Create your bylaws
- Assess the resolutions.
Incorporate your S corporation in the state where the vast majority of business will take place. Make sure your company meets the eligibility criteria by reviewing the qualifications, which are above 100 percent.
It is important to notify the IRS that your corporation is becoming an S corporation for the sake of taxes, then complete form 2553 shortly after they're notified.
S Corporation Taxation
Electing to become an S corporation changes how the company is taxed. C corporations are required to pay annual income taxes each year. When distributions are made, they must be included as dividend income for the year the payment was received. Therefore, the income of a C corporation is taxed twice.
An S corporation is different, allowing the business income to flow directly to the shareholders according to their share of ownership. Shareholders include their portion of the business on their personal tax returns, regardless if distributions are made that year or not.
Remember that an S corporation is not a separate corporation by itself. It is an election made by a corporation, resulting in a change of tax treatment from the IRS.
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