Question:
I currently started doing the paperwork for an S-corp. After doing the paperwork and submitting somthing happened between me sending off my paperwork to the IRS and them receiving it.
The IRS currently has me as C-corp. At this time I am not sure what to do as I really was planning to have an S-corp. I was reading the responses through out this thread.
Basically I just started this business so I am not sure what to do from this point. It is pass the time to change it over to an S-corp. As far as taxes I did a 1140-S instead of a 1140. So I guess the IRS has this but not my 2553 form which elects me to be a S-corp.
I have done some research and the C-corp seems to be more expensive to maintain as I am a one person operation which is why I opted for the S-corp.
Would anyone have any advice to give on my situation? What can I do? I know that this business wont make alot of income because it is just starting out. Once again any advice would be greatly appriciated.
Answer:
Unfortunately, you will be a C-Corp for 2005. However, you can complete your 2553 anytime this year and file it so that you are an S-Corp starting January 1, 2006.
If the IRS receives a 1120S and expects an 1120 they will send you a letter requesting that you complete the correct form and mail it asap.
The major difference between the C-Corp and the S-Corp is the taxation of profits. All profits from a S-Corp flow through to the owners and shareholders at the end of the year. Profits for a C-Corp stay in the company unless dividends are issued. The profits are taxed by most States and the IRS. The dividends go on your personal income tax return and taxed again.
The paperwork to maintain each is the same. You must issue stock (C-Corp can have multiple classes, an S-Corp only one) and pay owners/managers as employees (i.e. payroll taxes, paychecks, etc.).
As you noted, you are just starting and there may not be much profit. In a C-Corp that will work to your advantage due to the taxation of profits. Stay as a C-corp for this year and elect to be an S-Corp for next year. The alternative is to dissolve the company altogether and start over (i.e. new name, new EIN, new corporation, more fees).
