S Corporation Requirements

For a corporate shareholder in a C corporation, there are tax advantages to electing S-status. The main advantages is being taxed only once on the corporations net income, and with adequate basis, deducting losses on there 1040. However, not all C-Corporations can elect S-status with the filing of the 2553.

To elect to be taxed as an S-Corp, the following requirements are necessary:
1. All shareholders must consent to the S Corporation status, and sign the 2553
2. There can be no more than 100 shareholders
3. There can be only one class of stock (voting and non-voting stock is permitted)
4. The corporation must be a domestic corporation and shareholders must be U.S. citizens or residents
5. Only individuals, estates, and certain trusts and charties can be shareholders. Corporations, partnerships, LLC's, LLP's, IRA's are ineligible shareholders.

If S status is elected, the shareholder receives flow-through income from the corporation on a K-1 which is reported on the shareholders 1040. This avoids the taxation at the Corporate level, and then as a distribution at the individual level, thus avoiding double taxation.