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TN Form Instructions 2553: What You Should Know
Form 2553 and file it. 5 days ago — What is “Small Business” Tax Classification? A Tax Conundrum. A Tax Topic On The Rise And A Tax Tip For 2023 — Forbes, “Small Business Tax Conundrum: Taxing The S Corporations”, 20 May 2017 If you are an S corporation, is the S corp tax classification correct for you? If you are filing Form 2553 for the first time. If you make an election to have it classified as a “small business,” will the IRS treat your S corporation as a “large business corporation”? If you haven't filed Form 2553 since 2023 and want to make an election this year. If you are a small business corporation that has paid federal income tax for the first three years in a row. What is “Small Business Tax Classification?” You can find a quick look at the classification here. Form 2553, election by a small business corporation “S corporation” defined by the IRS. The IRS uses this term to describe companies that pay a substantial portion of their income as wages, and for which the company is taxed by the individual income tax. The IRS defines a “residential holding corporation” as an S corporation that meets certain requirements to file a Form 1120S. These requirements aren't all that onerous, but to take advantage, the S corporation must have a headquarters or substantial branch establishment in the United States for the entire tax year. Generally, the S corporation must pay at least 75% of its gross income to the U.S. shareholder. And the S corporation must report its U.S. shareholder's distributive share of the S corporation's gross income as gross income on the Schedule D (Form 1120). Most companies that are organized as S corporations are limited liability companies — sometimes called “LCS” or “Lolls.” These types of companies are not subject to the corporate tax in the U.S., but they must pay most federal income tax at the individual rate on their earnings and dividends. The IRS has identified several other criteria which corporations need to be qualified as “small businesses” under the federal tax law. They must be organized and operated primarily for profit, must elect the small business corporation tax classification, and must pay most federal income tax at the reduced individual rate. Because they are not required to include their U.S. shareholder's distributive share of this income, LCS do not generally pay income tax on their distributions.
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