“Beware the ides of March.” That’s the March 15 date from Shakespeare’s Julius Caesar. It’s also the tax return due date for corporations and a lesser-known tax deadline for business owners — the cutoff for electing S corporation status for 2005.
Background: An S corporation operates as a pass-through entity in much the same manner as a partnership. Items of income and deduction are passed through to the individual shareholders for tax purposes. Thus, the owners receive the protection from personal liability afforded to corporations, but avoid the “double taxation” pitfall of regular C corporations. This has made S corporations a popular entity for many business operations.
The election to be treated as an S corporation requires the irrevocable consent of every shareholder. Keep in mind:
If a husband and wife have a community interest in the stock, both spouses must consent to the election.
Consent of a minor may be given by a legal representative or a natural or adoptive parent of the minor if no legal representative has been appointed.
Consent of an estate is made by the executor or administrator.
If the stock is owned by a trust (other than an electing small business trust) the deemed owner of the trust must consent.
Note: The American Jobs Creation Act of 2004 liberalized the tax rules for S corporation ownership. Among other changes, an S corp can have as many as 100 shareholders (up from 75) and family members are treated as a single shareholder. As a result, more businesses may benefit from S corporation status.
Call me at 856-665-2121 to see if an S election is right for your business!