An S Corporation could be changed to a C Corporation.
S-Corporation elections can be made when you incorporate your business in the United States.By default, your corporation is a C corporation.A partnership is taxed as a corporation.Double taxation of a traditional C corporation is avoided by your business.There are a number of rules that must be followed when you have a favorable tax status.These rules may be detrimental to your company as it grows.If you want to change an S corporation to a C corporation, you just need to send a letter to the IRS revocation of your S-Corporation election.You have to have a majority of the shareholders on board to make a decision.
Step 1: You should consult an attorney or tax advisor.
Changing from an S corporation to a C corporation can have significant tax consequences.Even if you think it's the best option for your company, you still need an expert opinion.If you have a financial advisor or accountant for the company, they can give you their opinion on whether the S-corporation election should be revoked.Make sure you give the expert all the information they need to make an informed analysis of the company's situation.Financial information and profit or loss projections are included.Explain the reasons why you think the election should be revoked.Take their advice to heart and listen closely to any expert you consult.It is a good idea to involve other board officers at this point, so they can talk to your advisors and understand how the change will affect the business's operations.
Step 2: Materials related to the change can be gathered.
As you build your case to change your company's tax status, you will need to reference basic founding documents.Since the change must be approved by shareholders who hold at least 50 percent of the stock in your company, you need to know how much stock they currently own.The documents should show the outstanding stock in the company, who owns what shares, and when they acquired those shares.You should look at yourself before you advocate the change, as your attorney or tax advisor may have specific documents they want to review.If you revoked the S-corporation election, you will need to look at your tax documents to see how much you have paid in taxes over the past few years.
Step 3: There are reasons for changing your corporate status.
Before your shareholders' meeting, you will need to carefully analyze the benefits of changing your corporation's tax status.You can highlight the benefits that fit your situation best by applying them to your corporation's situation.Changes in the company's financial situation can lead to revocation of an S-corporation election.You may want to seek funds from investors who will demand more shares than you are allowed to issue as an S-corporation.Make sure you include the negative consequences in your outline.You must be able to show how the change will benefit the shareholders.
Step 4: Charts and graphs can be made.
There are visual aids that can help people understand the points you are making about your corporation's tax status.Keep your audience in mind.Before they decide whether to support the revocation, each shareholder will want to know how this will affect their investment.You need to be able to show the shareholders how the changes will affect their ownership if financial projections are involved.Existing shareholders will be concerned about their shares beingDiluted when you seek additional investment or bring on additional shareholders.As a result of the S-corporation election revocation, charts and graphs can be used to show how each individual's investment will change.
Step 5: You should schedule your meeting.
A change of a corporation's tax structure requires the consent of the shareholders.Shareholders should have enough time to attend the meeting.If you run a small family business, you don't need to give a lot of notice.If your shareholders are located all over the country, additional notice may be required so they can make travel arrangements.This meeting doesn't have to involve everyone meeting in one room.You can arrange for people to attend over the phone or online.
Step 6: You can present your case to the shareholders.
Begin your presentation by saying that you would like to withdraw the corporation's S-corporation election.Provide a brief summary of what that would mean for the board members and shareholders.You want to explain the reasons for the change.You can show any presentation materials at this time.The financial situation of the company and how the change in tax status would affect that situation can be presented by a tax advisor or accountant.It's important to include time for shareholders to ask questions.If you don't know the answer to a question, you may want to take a break from the meeting.If you don't meet the requirements, the IRS can take away your S-corporation status.If the company is in danger of violating the IRS's rules for making the S-corporation election, this may be your strongest argument for withdrawing the election.
Step 7: Listen to the opinions of others.
There is a chance that someone will not agree that revoking the S-corporation election is in the best interests of the business.Allow anyone who disagrees with the idea to speak up.Don't interrupt them while they are speaking.Give them a different angle to consider if you have any information you can provide after they've finished speaking.It can be tempting to call a vote without giving anyone else a chance to speak, if you believe that at least 50 percent of your shareholders agree with you.You don't have the chance to get everyone on board if you do this.
Step 8: Take a vote.
If shareholders control at least 50 percent of the total shares of stock in your company, you will not be allowed to withdraw your S-corporation election.You know when you've hit the target if you keep a tally of how many shares you own.It isn't required by the tax code to have a unanimous decision.The number of shares owned by each shareholder is the basis for votes.If you and your brother own 50 percent of the shares in your company, you can revocation S-corporation status.The other 50 percent of your company's shares are owned by five different people.If two people own 50 percent of the company, that's all you need.
Step 9: "Revocation of S Corporation Status" is a statement.
The IRS doesn't have a fill-in-the-blank form that you can use to revocation the election to be treated as an S corporation.The information that must be included in your letter is specified in the tax code.The letter should be addressed to whom it may concern.The letter should be dated the same day you plan to mail it.On this date, your revocation will be effective.The full legal name of the corporation and its EIN should be included in the subject line of your letter.You revoked your S-corporation election in your first paragraph."This letter is to provide notice pursuant to Section 1362(a) of the Internal Revenue Code that my corporation revoked its S-corporation election."To include the state in which the business was incorporated, use your business's full corporate name.When you mention the election, list the date on which you filed the IRS Form 2553.You should include the number of shares of stock issued and outstanding, as well as the taxable year for which you intend the revocation to take effect.The revocation must be signed by the president or CEO of the company.
Step 10: Make a statement of consent.
A statement of consent signed by the shareholders who have consented to the revocation of the company's S-corporation election is required with your revocation letter.A single paragraph can provide the full legal name of the corporation and state that the shareholders consent to the revocation outlined in the statement of revocation.For each shareholder, you must include their name, tax identification number, number of shares they hold, and the date they acquired those shares.
Step 11: The required signatures need to be obtained.
Every shareholder who agrees with the revocation of the business's S-corporation status must sign the consent form.The revocation statement must be signed by the president or CEO of the corporation.If applicable, have each shareholder sign and provide their corporate title after signing the statement.Everyone can sign the forms on the same day.All signatures should be dated before the effective date of your revocation.
Step 12: Send the documents to the IRS.
Once your statements are finalized and signed, you must mail them to the same service center where you initially filed your S-corporation election form.You should have a copy of the documents for the company's records before you mail them.Along with your other tax documents, keep your copies.If you want to know when your letter is received by the IRS, use certified mail with return receipt requested.You should keep the receipt with your copies of the documents.Your revocation is final on the day of the letter's postmark, not the date the IRS receives it.If you need to prove your letter was received, you want the receipt.The process for making this change is relatively quick once agreed upon by the shareholders.It should take less than a month for the change to become final.
Step 13: You should file taxes as a C corporation.
It will be effective if you file your revocation by March 15.If you want to file corporate taxes, you have to be a C corporation and not an S corporation.You have to file taxes on your S corporation if your letter is after March 15.You have to file taxes as a C corporation the following year.If your S-corporation status is revoked on March 1, you will have to file taxes for 2016 as a C corporation.You have to file taxes in 2016 as an S corporation if your election isn't revoked until March 20.You will file taxes as a C corporation.The same deadlines apply to state taxes.You don't have to file additional documents for state taxes.You just use the same tax status you used for federal taxes.