S-Corporations
At Mraz Tax Solutions, we understand that many business owners choose the S-Corporation for its combination of corporate liability protection and pass-through taxation. This page outlines the key aspects of electing and operating a corporation under S-status, the tax and compliance implications, and how our firm can assist you (especially if you service complex individual and business owner returns).
*We provide a free initial consultation with a licensed tax advisor to determine your tax needs.
How Mraz Tax Solutions Can Help Your S-Corp
Given your interest in growing your practice and servicing clients with complex individual or business returns, our firm offers tailored services to S-Corporations and their shareholders.
Entity election planning
We assist you in deciding whether your business should elect S status (or convert to it), including timing, eligibility, and shareholder structure.
Tax return preparation and review
We prepare the corporate return (Form 1120-S) and assist in coordinating shareholder K-1s, basis worksheets, and individual returns.
Payroll and compensation strategy
We advise on reasonable salary levels, shareholder distributions, payroll tax implications, and documentation to withstand IRS scrutiny.
Basis, distribution and loss tracking
Mraz Tax Solutions can help you monitor shareholder stock/debt basis, ensure correct loss allocation, and plan for tax efficient distributions.
Multistate operations and California specifics
We assist clients with nexus, state tax obligations, California S-Corp compliance, and multistate filing issues.
Book a consultation
If you are interested in learning more about our services, schedule an appointment with one of our tax experts. Book a one-on-one phone call and learn more about how we can help you with your tax needs.
What is an S-Corporation?
An S-Corporation (“S-Corp”) is a corporation (or other eligible entity) that elects to be taxed under Subchapter S of the Internal Revenue Code (IRC). See Internal Revenue Service (“IRS”) guidance on S-Corporations.
Key features include:
- The entity must first be a domestic corporation (or other eligible entity) and then file an election (Form 2553) to be treated as an S-Corp.
- If qualified, the S-Corp's income, losses, deductions and credits pass through to its shareholders (rather than being taxed first at the corporate level and then again at the shareholder level).
- Shareholders enjoy limited liability (through the corporate form) but must comply with S-status rules and follow corporate formalities.
Eligibility and Election Requirements
To elect S-status, a corporation must meet specific criteria under IRC §1361 and related regulations. Some of the principal requirements are:
- The entity must be a domestic corporation.
- It may have no more than 100 shareholders.
- Shareholders must generally be individuals (certain trusts and estates qualify) and may not include partnerships or nonresident aliens.
- It may only have one class of stock (although differences in voting rights are permissible).
- It must file Form 2553 (“Election by a Small Business Corporation”) timely, signed by all shareholders.
Contact us today to discuss your S-Corp strategy and begin taking advantage of professional tax guidance you can trust.
Frequently Asked Questions
If you are considering electing or converting to S-Corporation status, or you already operate an S-Corporation but want to optimize compensation, distributions, basis, or multistate tax strategy, we invite you to schedule an initial consultation with us. We will review your entity structure, shareholder scenario, compensation plan and tax planning opportunities, and provide a clear recommendation tailored to your situation.
My business is an LLC, can it elect S-corporation status?
Yes, an LLC that meets the eligibility requirements can have its federal tax classification changed so that it is treated as an S-corporation (by first being treated as a corporation or making the proper election).
If my S-Corporation earns profits but does not make distributions, do I still pay tax?
Yes, because S-Corporation items pass through to the shareholders and must be reported on their tax returns, even if the cash is retained in the business.
What happens if we fail to pay a reasonable salary to shareholder employees?
The IRS may recharacterize distributions as wages and impose employment tax liabilities and penalties. Courts have held that services provided by shareholder officers trigger employment tax obligations.
What are the consequences of exceeding one of the eligibility requirements (e.g., more than 100 shareholders)?
If an S-Corporation fails to meet the eligibility requirements (shareholder count, eligible shareholders, one class of stock, etc.), it may lose its S status (termed “termination” of S election). The entity could then be taxed as a C-Corporation, with full corporate level tax.
Why file your taxes with Mraz Tax Solutions?
We specialize in individual and small business tax returns. Whether you're an employee filing a W-2, a contractor taking part in the sharing economy filing a 1099 or a small business owner, we are here to help. We understand the importance of minimizing your tax and getting you the maximum refund you are legally entitled to. In order to do this and to prepare a complete and accurate return we take the time to get to know you and your goals.