To do this, you file articles of incorporation with your Secretary of State. Unlike S corporation status, incorporating as a C corporation is something you have to handle through your state. A C corporation is simply a regular corporation. In order to elect S corporation status your business must first be structured as a C corporation.
Requirements for becoming an S corp Step 1: become a C corp (or an LLC) S corps report their income to the IRS on Form 1120S. To become one, you have to apply to the IRS. Keep in mind that “S corporation” is a tax designation, not a business entity type. In the absence of corporate tax, the S corp “tax rate” is wherever the business owner’s personal income level falls on the tax bracket. The S corporation status lets businesses avoid double taxation, which is what happens when the business pays corporate tax and its owners pay taxes on their earnings. Rather, they’re what’s called a “pass-through entity.” Their income (or losses) are “passed through” to the company’s individual shareholders to split up amongst each other (reported on a Schedule K-1) and report it on their own personal income tax returns. Generally speaking, S corporations don’t pay federal income tax. “S corporation” stands for “Subchapter S corporation”, or sometimes “Small Business Corporation." It’s a special tax status granted by the IRS (Internal Revenue Service) that lets corporations pass their corporate income, credits and deductions through to their shareholders.
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