How to Convert to S Corp

What tax forms must an S corporation file?

S corporations must file and prepare the following tax forms. Once the C corporation has elected to become an S corporation, the corporation must file:

• an S corporation information tax return,
• IRS tax form 1120-S or the or the US Income Tax Return for an S corporation, and prepare
• IRS tax form 1120-S Schedule K-1 or the Shareholder's share of Income, credits, deductions, etc for each shareholder

When will the S corporation election terminate?

The S corporation tax election automatically terminates if the corporation fails to meet the S corporation requirements.

The five year rule of S corporation conversion

Once the S corporation tax election terminates, the corporation cannot make the S corporation election for another five year.

Election of S corporation at the state level and the federal level

Most states follow the IRS. So, once a corporation has elected to become an S corporation or has converted from a C corporation to an S corp, the corporation is no longer taxed at the corporate level. Taxes are passed through to shareholders at the federal level and also at the state level. Shareholders then pay taxes to the state at the state individual income tax rates.