Form Instructions 2553

As noted in the other post only a business attorney may complete legal conversion of single member LLC to a corporation. Looking at tax issues only, the transfer of assets from the LLC has tax ramifications.For tax purposes the one member LLC represents a disregarded tax entity (Treasury Regulation Section 301.7701-3(b)(1)(ii). This statement means the LLC individual assets reside for tax purposes with the member. So, for tax purposes, the member transfers the assets from the LLC to the corporation. So, the question becomes how do you do such?The internal revenue codes allows for a tax free transfer of the assets from the individual member to the corporation under Section 351. The only exception here is if debt transferred exceeded the tax cost of assets transferred. Here, the member recognizes gain for the excess of the debt transferred over the tax cost of assets (Section 357(c)(1)).Both the individual member and the new corporation have tax reporting requirements for the transfer. As the individual member includes a detailed transfer statement on his/her personal income tax return for the year the transfer happened. And the corporation also has the similar requirements of including a statement with the return (Treasury Regulation Section 1.351.-3(a)). In addition, Treasury requires the two parties have records in place consisting of the specific assets transferred including tax cost and fair market value along with any liabilities assumed or extinguished as noted in paragraph (e) of the above Treasury Regulation along with Treasury Regulation 1.6001-1 in reference to record requirements.So, some conversions would not involve the transfer of assets as the LLC may have been dormant. However, a taxpayer would still comply with the above Treasury Regulaton in order to file a complete and accurate return as means for clarifying the above with Treasury.I have completed the above tax analysis based on a general situation. As the facts change the tax results may also change. www.rst.tax

It is not a difficult form,(I charge $25 to prepare the form for you.) but I do see business owners frequently make mistakes trying to do it themselves.  I would say it is a matter of how confident you are that you can understand and follow all the instructions for the 2553.It is probably more important that you have a CPA prepare the S Corp tax return each year, help with payroll tax reporting and help you with keeping an accurate set of accounting records. Even if you screw up the 2553, I can usually fix it. It is all those ongoing requirements that usually get S Corp owners in trouble.

You must have read the Citizens United case. Humm…Unlike the other respondents, I think you can become a corporation, or at least be taxed that way, more or less. I assume you have your own business. That’s where the majority of your income comes from. It’s now a sole proprietorship, you file a schedule C with your tax return. So, you should form a single member LLC, and then file to be taxed as a C corp. Now you are a C corp for all tax purposes.You sill still have to file a 1040. You will still have to take a salary and pay taxes on it as an individual. But a large part of you is a corporation, in a round about sort of way.

What Is S-Corporation And How To Form OneS-Corporation is a regular corporation that has 100 shareholders or less and that passes-through net income or losses to its shareholders for tax purposes (similar to sole proprietorship or partnership). Since all corporate income is "passed through" directly to the shareholders who include the income on their individual tax returns, S Corporation are not subject to double taxation.An eligible domestic corporation (C-Corporation) can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S Corporation. Generally, an S Corporation is exempt from federal income tax other than tax on certain capital gains and passive income. On their tax returns, the S Corporation's shareholders include their share of the corporation's income or loss.S-Corporation vs. C-CorporationAdvantages:Like C-Corporations, S-Corporations are separate legal entities from their shareholders and, under state laws, generally provide their shareholders with the same liability protection afforded to the shareholders of C corporations.Unlike C-Corporations, for Federal income tax purposes taxation of S corporations resembles that of partnerships. Thus, income is taxed at the shareholder level and not at the corporate level.Certain corporate penalty taxes (e.g., accumulated earnings tax, personal holding company tax) and the alternative minimum tax do not apply to an S-Corporation.Disadvantages:Unlike a C-Corporation, an S-Corporation is not eligible for a dividends received deduction (a tax deduction received by a corporation on the dividends paid to it by other corporations in which it has an ownership stake).Unlike a C-Corporation, an S-Corporation is not subject to the 10% of taxable income limitation applicable to charitable contribution deductions.Unlike a C-Corporation, ownership of an S-Corporation is significantly restricted (read next).Who Can Form an S-Corporation?S-Corporations are more suitable for small and family businesses, and for those who start their business with small investment. Also, some existing businesses qualify for S-Corporation status.To form S-Corporation or to change your existing C-Corporation into S-Corporation (also called " Election of S-Corporation Status") certain conditions must be met:S-Corporation cannot have more than 100 shareholders.All shareholders must be either U.S. citizens or residents, estates, or certain trusts.Can only have one class of stock. Preferred stock is not allowed.Profits and losses must be accorded to owners in proportion with their ownership stake.Must use the calendar year as its fiscal year unless it can demonstrate to the IRS that another fiscal year satisfies a business purpose.Shareholders cannot deduct losses in excess of their investment.The corporation cannot deduct fringe benefits given to employees who own more than 2% of the corporation.Filing With IRS And The StateS-Corporation Election is filed with the IRS (Election by a Small Business Corporation, Form 2553), and that election is recognized by all states. with the exception of New York, New Jersey and Arkansas, which require additional state filing.S-Corporation AdvantagesForming S-Corporation generally allows you to pass business losses through to your personal income tax return, where you can use it to offset any income that you have from other sources.S-Corporation shareholders are not subject to self-employment taxes. These taxes, which add up to more than 15% of your income, are used to pay your Social Security and Medicare taxes.When you sell your S-Corporation, your taxable gain on the sale of the business can be less than it would have been had you operated the business as a regular corporation.Taxation of S-CorporationsAs already mentioned above, S-Corporations are not subject to corporate tax rates. Instead, S-Corporation passes-through profit (or net losses) to its shareholders and those profits are taxed at individual tax rates on each shareholder's Form 1040. The pass-through (sometimes called "flow-through") nature of the income means that the S-Corporation's profits are only taxed once - at the shareholder level. The IRS explains it this way: "On their tax returns, the S-Corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of non-separately stated income or loss".S-Corporations therefore avoid the so-called "double taxation" of dividends in most states. There are however two exceptions to this rule:California: There is a franchise tax of 1.5% of net income of an S-Corporation (minimum $800). This is one factor to be taken into consideration when choosing between an LLC and an S-corporation in California. On highly profitable enterprises, the LLC franchise tax fees, which are based on gross revenues, may be lower than the 1.5% net income tax. Conversely, on high gross revenue, low profit-margin businesses, the LLC franchise tax fees may exceed the S-Corporation net income tax.New York City: S-Corporations are subject to the full corporate income tax at a 8.85% rate. However if the S-Corporation can demonstrate that a portion of its business was done outside the city, that portion will not be subject to the additional tax.Retaining Profits of S-CorporationS-Corporations (much like regular C-Corporations) are allowed to retain their net profits as operating capital. However, all profits are considered as if they were distributed to shareholders, and as a result shareholders might be taxed on income they never received (whereas a shareholder of C-corporation is taxed on dividends only when those dividends are actually paid out).Converting S-Corporation Back to C-CorporationS-Corporation status is not permanent and can be reversed back if so desired. For example, if the business becomes more profitable and there are tax advantages to being a regular C-Corporation, S-Corporation registration status can be dropped after a certain amount of time.How To Form S-Corporation Online

In California you'd first file Certificate of Conversion with the Secretary of State along eith a $150 filing fee. Here’s the fotm with instructions.[1]Then you'd file a Form 2553 with the IRS electing S status. Here’s the instruction with link to form.[2]Once youve converted your entity to a corporation, you’ll need Bylaws, Minutes of a First Meeting, Stock, a Shareholder Agreement and a few other filings. You may want to have a lawyer do all if that.Footnotes[1] https://bpd.cdn.sos.ca.gov/corp/...[2] Instructions for Form 2553 (12/2017)

A sole-member LLC shareholder of an S-Corp is considered a disregarded entity. The S-Corp files the return with the activity of the LLC. The individual sole-member of the LLC is listed on the K1.If a single member limited liability company (LLC) owns stock in the corporation, and the LLC is treated as a disregarded entity for federal income tax purposes, enter the owner's name and address. The owner must be eligible to be an S corporation shareholder.Instructions for Form 2553 (12/2017)A multi-member LLC cannot be the shareholder or one of the shareholders of an S-Corp. Such an entity is ineligible to make the S-election. If such a situation arises after-the-fact, the S-Corp status is automatically revoked.To qualify for S corporation status, the corporation must meet the following requirements:Be a domestic corporationHave only allowable shareholders May be individuals, certain trusts, and estates and May not be partnerships, corporations or non-resident alien shareholdersHave no more than 100 shareholdersHave only one class of stockNot be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).S Corporations | Internal Revenue ServiceHowever, a multi-member LLC itself can elect to be treated as an S-Corp assuming it meets the other requirements using a form 2553. The LLC would not own the S-Corp; it would be the S-Corp. It would file an 1120S like any other S-Corp, and it would not be treated as partnership for tax purposes.Some states, such as New Jersey, require a separate state election in addition to the federal election to be treated as an S-Corp at the state level.

The answer depends upon what kind of companies you have, what they do, and where you are located. ( local law can have a tremendous impact on the structure chosen -- for example, California has a gross receipts tax on LLCs which can make them prohibitively expensive). This answer assumes you are in the U.S. and not in California.Holding real estate in an S-Corp is generally a very bad idea, on many fronts.  Dissolution of an S-Corp triggers a deemed sale which will trigger tax, even if all you are doing is returning the asset to the party that contributed it.  We'll assume there's no real estate involved.My suggestion would be to have each venture be established as an LLC, all owned by the same S Corp.  This would allow separation of liability to each, and yet retain a very simple structure that would be easily administered.We have a course on choice of business entities at Home - Certified Entrepreneurial Advisor .  It may be helpful in giving you the various positive and negative aspects to be considered. Regardless,  you should consult with a good accountant and attorney.

Set up a corporation. Here you can find the corporation checklist and resources - you can decide your way of incorporation. Checklist for Starting an S Corp (S Corporation)Understand S corporation election basics.  Here you can see S corproation must-know's:http://bzelf.com/s-corporation-s...And follow the instructions to make the S corporation electing with IRS/Federal through filing 2553: Filing Form 2553Maryland recgonize federal S corporation election. S Corporation State Recognition

A2A.First of all, you do not “incorporate an LLC into a S-corporation”. If you own an LLC, and you elect to be treated as an S-corporation for tax purposes, you file IRS Form 2553, Election by a Small Business Corporation. If you file by the 15th day of the third month of your tax year (March 15 for an LLC operating on a calendar year basis), the election becomes effective in that year, otherwise the election becomes effective during the next year. Note that an LLC cannot elect S-corporation treatment unless all owners are US citizens.Once the election to be treated as an S-corporation becomes effective, the company files a corporate tax return, IRS Form 1120S, U.S. Income Tax Return for an S Corporation. This return is filed using the corporate name and EIN. As part of the filing of Form 1120S, the company will create a Schedule K-1 for each owner that shows that owner’s share of the corporation's income and expenses. The K-1 will contain the Social Security number of each owner, and a copy of each K-1 is included in the 1120S. The LLC doesn't pay any taxes itself; Form 1120S is an information return only.Each owner reports the information from Schedule K-1 on his or her individual tax return, according to the Shareholder Instructions that are provided with Schedule K-1, The owners are responsible for the taxes on their distributive share of the LLC’s income, regardless of whether they receive a cash distribution or leave it in the company as retained earnings. The owners can deduct losses only to the extent that the loss doesn't exceed their basis in the company (where the basis is generally the amount of capital invested, adjusted for retained earnings and prior losses).Any owner that performs services for a company that elects S-corporation treatment must be paid a salary (with payroll taxes deducted and paid to the IRS during the year) that is reasonable for the services provided -usually this should be what you would have to pay an outsider to do the same thing, although there is some flexibility. The intent is to ensure that income intended as compensation for services is taxed appropriately as compensation rather than being shielded in the form of a (usually) non-taxable distribution.As Andrew Weill notes, this isn't a decision that you should be making without a thorough understanding of the implications, and I strongly suggest that you engage a qualified professional who can advise you how to proceed.