C Corporation Election
If your pass-through business entity is eligible to be taxed as a Corporation, CorpNet can help you prepare your application to request C Corporation tax treatment for your company.
What Is C Corporation Election?
C Corporation Election Advantages and Disadvantages
Advantages:
- Separates the business’s and its owners’ tax liabilities
- May potentially lower the business owner’s personal tax burden because only the individual’s wages and salaries rather than all the company’s profits are subject to Social Security and Medicare taxes
- May possibly reduce overall income tax (e.g., if the Federal corporate tax rate is less than the business owners’ individual tax rate)
Disadvantages:
- Some business income is taxed twice. The company’s profits are taxed at the corporate rate. Then, when it distributes profits as dividends to its shareholders, those monies are taxed again at each person’s individual tax rate.
- Not eligible for the Qualified Business Income deduction available to pass-through entities
- More cumbersome income tax filing process
How to Apply to Be Taxed as a C Corporation
CorpNet can help eligible entities that want to be classified as a corporation for tax purposes to prepare the necessary paperwork. New businesses that want to receive C Corp tax treatment from the start should typically file the form as soon as their entity filing with the state is effective. Existing businesses can file the form when they wish to switch from their current tax filing status to C Corporation tax election.
Generally, the IRS responds within 60 days to let business owners know if their election request was or was not approved.
While no formal deadline exists for applying for C Corporation tax status, the election cannot take effect more than 75 days prior to the filing date or later than 12 months after the election request was filed. So, business owners must file their election form no later than 75 days after their desired effective date. Or, if they want their election to be effective in the future, they must file their election form no more than 12 months before their desired effective date.
If you miss the deadline for having your election effective at the desired time, you might be able to get late election relief from the IRS, depending on the circumstances.
