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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29535
Experience:  Taxes, Immigration, Labor Relations
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We formed a corporation in California on 6/1/2013 and are preparing

Customer Question

We formed a corporation in California on 6/1/2013 and are preparing our entity election to be filed with the IRS. We are thinking we want to do an S corp so tax liability will not fall through to the corporate owner. The plan is if there is any profit at the end of the year it will be bonused out and the corp will not show a profit so there would be no corporate taxes owed.

There are 3 possible elections. Which one is the one we need:

A domestic eligible entity electing to be classified as an association taxable as a corporation.

A domestic eligible entity electing to be classified as a partnership.

A domestic eligible entity with a single owner electing to be disregarded as a separate entity.
Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.

LEV :

Hi and welcome to Just Answer!
Generally - as your financial plan is to pay wages and bonuses to employees - and keep corporate's income close to zero - it doesn't matter if you choose C-corporation or S-corporation.
The difference is that - C-corporation pays its own income tax on net taxable income, but S-corporation passes that tax liability to shareholders (owners).
However - if taxable income will be minimal or none - the type of corporation would not really matter fro that purpose - but you might want change your plan in future.
If you want to select your corporation to be treated as S-corporation - you need to use form 2553 - see here - http://www.irs.gov/pub/irs-pdf/f2553.pdf
If you want it to be C-corporation - no need to file any form - and that status would be by default.

LEV :

There is no choices you indicated on form 2553.
However - most likely you are looking at form 8832 - see here - http://www.irs.gov/pub/irs-pdf/f8832.pdf
That form is used for making selection for the LLC.
Because you indicated - "We formed a corporation in California" - you need to use form 2553 and that choice is not relevant for you.

LEV :

Let me know if you need any help.

Expert:  Lev replied 3 years ago.

Just in case you were not able to use the chat - I am switching to Q&A mode and porting the answer below. Please feel free to communicate if you need any clarification or have other tax related issues.

Hi and welcome to Just Answer!

Generally - as your financial plan is to pay wages and bonuses to employees - and keep corporate income close to zero - it doesn't matter if you choose C-corporation or S-corporation. The difference is that - C-corporation pays its own income tax on net taxable income, but S-corporation passes that tax liability to shareholders (owners).

However - if taxable income will be minimal or none - the type of corporation would not really matter fro that purpose - but you might want change your plan in future.

If you want to select your corporation to be treated as S-corporation - you need to use form 2553 - see here - http://www.irs.gov/pub/irs-pdf/f2553.pdf If you want it to be C-corporation - no need to file any form - and that status would be by default. There is no choices you indicated on form 2553.

 

However - most likely you are looking at form 8832 - see here - http://www.irs.gov/pub/irs-pdf/f8832.pdf That form is used for making selection for the LLC. Because you indicated - "We formed a corporation in California" - you need to use form 2553 and that choice is not relevant for you.

Let me know if you need any help.

 

Another expert wants to point out that any income you pay out as bonuses would be subject to FICA tax, whereas if you were made an S-election or not, - thus if you make S-corporation selection - you could take a minimal salary and take the rest as a dividend, and save yourselves 15.3% tax!