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Subchapter S Corporation Eligibility Requirements.

In order for a business to qualify as an S Corporation, there are several eligibility requirements that need to be met. Any corporation that meets the following criteria can be approved for Subchapter S Corporation status:

* The company must have 75 or fewer shareholders, and each shareholder must agree to file as an S Corporation.

1. * Every stockholder must be a resident and citizen of the United States. * Stock sold by the company must be of a single class.
2. * The company is required to use the calendar year as the official fiscal year. If a corporation meets these requirements, they must file form 2553 with the IRS to be granted Subchapter S Corporation tax status.

Advantages to Subchapter S Corporation Status. This tax status is appealing to many business owners for several reasons. The primary advantage to filing as an S Corporation is that income is passed through directly to the shareholders who file corporate income with their personal taxes. In this manner, the corporation avoids being taxed twice for the same income. In most cases, S Corporations do not pay any income tax and losses are absorbed by the shareholders instead of the corporation. Additional advantages to Subchapter S Corporation tax status includes:

* Return on investment earnings do not fall under self-employment tax status providing the shareholder/employee receives reasonable compensation for their work.

* Financial documentation and accounting is less complicated than that required by traditional corporations.