Inadvertently Terminate your S Corporation Election?

The "S" corporation tax election is one of the most popular structures in the U.S.

Many entrepreneurs opt for the "S" election because of the self-employment tax savings.

Maintaining the "S" election can be difficult. S corporations must abide by the rules under the IRC, which generally require the following:

1. Can have no more than 100 shareholders
2. Can only have natural persons as shareholders
3. Can only have U.S. tax residents as shareholders
4. Can only have 1 class of stock

If an S corporation violates one of those conditions above, it will automatically terminate the S corporation election.

If the S election terminates, the company must file a short period Form 1120S, and then file a Form 1120 for the remainder of the tax year.

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