An S corporation in Florida is a type of business that has elected to pass along all income, deductions, credit, and losses to its shareholders to be taxed at the individual level rather than be taxed twice. To become an S corporation and take advantage of its special tax status, a C corporation must file documentation with the IRS.

In Florida, the only taxes S corporations are responsible for are passive income and built-in gains. Electing S corporation status allows a corporation to avoid being taxed as a separate entity. An S corporation's income is treated similarly to that of sole proprietorships and partnerships.

Qualifications for S Corporation Status in Florida

To qualify for S corporation status in Florida:

  • You must be a U.S. corporation.
  • Shareholders can only be U.S. citizens, residents, and some qualified organizations, such as nonprofits.
  • The corporation cannot have more than 100 shareholders.
  • You can only issue one class of stock.

Creating an S Corporation in Florida

Creating an S corp is essentially a two-step process:

  • To start, the business must incorporate under Florida state rules as a regular corporation.
  • To change to S corporation status, you must file documentation with the IRS.

File Articles of Incorporation with the Florida Department of State, Division of Corporations to start the process. You can complete the Articles of Incorporation online and pay using a credit card. Another option is to complete the fillable PDF form and mail it to the Division of Corporations.

Review all the rules and determine whether you are eligible for S corporation status in the first place. Assuming you meet S corporation requirements, you can then make the IRS election. You must notify the IRS of your S corporation election and fill out IRS Form 2553. Complete this form no later than the 15th day of the third month after you become incorporated. Each shareholder must sign and show consent, as you need unanimous approval to become an S corporation.

Electing to become an S Corporation will change how the company is taxed. Rather than pay income tax at the corporate level, S corporations pass income along to their shareholders. Shareholders must include their respective share of income on their personal tax returns, even if the corporation doesn't make any distributions that year.

Understanding Differences Between S and C Corporations in Florida

There are a number of similarities and differences betweenS and C corporations:

  • You must file Articles of Incorporation for both S and C corporations.
  • Both corporation types help keep owners from being personally liable for company debts.
  • S and C corporations are required to hold annual shareholder and directors meetings.
  • An S corporation passes its income and losses through to the shareholders to be reflected on their individual income taxes. C corporations are considered separately taxable entities.
  • C corporations can have an unlimited number of shareholders whereas S corporations are limited to 100.
  • C corporations can have non-U.S. citizens and residents as shareholders, but S corporations can only have U.S. residents and citizens.
  • C corporations can own other S corporations whereas S corporations have stricter rules on who can apply for shareholder status.

Advantages of S Corporation Status

  • More credibility, as clients often trust corporations more than LLCs due to the extra work required to maintain them.
  • The pass-through taxation is one of the most attractive reasons to become an S corporation.
  • Florida S corporation shareholders report income on their personal income tax filings.
  • Transfer of ownership for S corporations is simple, as opposed to partnerships and LLCs, where the business can be dissolved if you transfer more than 50 percent ownership.

Disadvantages of S Corporations

  • They can issue only one class of stock.
  • There can be no more than 100 shareholders.
  • The IRS scrutinizes S corporations more closely because of the way they're taxed.
  • If an S corporation makes a mistake, it can be dissolved.
  • You must incorporate prior to becoming an S corporation.

If you form a corporation in Florida, it is a C corporation and will remain so if you don't take further steps to become an S corp. Before becoming an S corporation in Florida, talk to a tax advisor to understand how the state treats this business type.

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