S-Corp Acceptance Letter: Everything You Need to Know

Have you ever seen an S-Corp acceptance letter? We’ll show you one later in this post.

By now you probably know of all the benefits of being an S-Corp. It is subject to flow-through taxation and self-employment tax is not assessed on business profits.

It normally takes a couple months to receive an s-Corp acceptance letter. But the IRS is backlogged so it could take a lot longer. But you should hear back within 3 months.

S Corp Acceptance Letter

If you’re a small business, you might consider filing as an S Corp for the tax benefits. You’ll avoid double taxation if you’re a corporation and you’ll be able to write off losses that you wouldn’t be able to write off otherwise.

But to become an S Corp, you need IRS approval and that takes time.

Getting Approved for an S Corp

To file as an S Corp, you must file IRS Form 2553 on time. The timing depends on how your business operates. If you run on the typical tax year, you must file by March 15th. If you operate on a fiscal year, you have until 2 months and 15 days after the first of your tax year to file for S Corp status.

How to File Form 2553

You might be eligible to file late, but it’s on a case-by-case basis and is up to the IRS. If you have a good reason, they may allow it. If they don’t, you’ll have to wait until the following year and make sure you meet the deadline.

What Happens Next?

Once you file Form 2553, you wait. The IRS takes up to 60 days to respond. If they approve your request, you’ll receive CP261 Notice. This is the IRS official documentation that they’ve accepted your request to file as an S Corp.

If you receive this letter, keep it safe with your permanent records. You don’t have to file Form 2553 again as long as your company continues to meet the requirements.

If the IRS doesn’t approve your request, you’ll receive CP264 Notice. This is a letter of denial and will include reasons why you were denied. If you feel this was a mistake, you can file Form 2553 again, but it will likely be after the due date since the IRS takes up to 60 days to respond.

When you refile, you must include the reason for the late file, which in this case would be that you feel the denial wasn’t warranted.

Getting a Copy of your S Corp Acceptance Letter

If you lose your copy of CP264 you won’t be able to get another copy. But, there’s an alternative. The IRS can send you an S Corp Verification Letter which does the same thing. It’s called 385C Notice and you can request it at any time after being approved as an S Corp.

You can request the letter over the phone, just make sure you have the necessary information to identify you as an officer of the business. You’ll receive the letter within 7 to 14 days from the date of the phone call.

What is an S-Corporation?

Many entrepreneurs choose the S-Corporation form because they’d like to protect their personal assets from business claims while taxing their business profits on their own individual income tax returns.

In the past, this was the only option for many entrepreneurs, but the Tax Cuts and Jobs Act may make it more popular than ever. Here’s what you need to know about the S-Corporation structure. Listed below are the benefits and disadvantages of this type of business structure.

An S corporation is a limited liability company that can only have one class of stock and can have either voting or non-voting stock. As a result, it is possible to have one shareholder that’s a company employee and receives corporate dividends tax-free.

Form 2553

Dividends that exceed the stock basis are taxed as capital gains and are therefore taxed at a lower rate than ordinary income. In addition, shareholders of an S-corporation can transfer their ownership interests and adjust their property basis without negative tax consequences. Additionally, S corporations establish credibility with investors, potential employees, and suppliers.

S corporations have numerous benefits. In addition to not paying corporate taxes, S corps provide liability protection. However, an S corporation may not provide you with all of the tax benefits you’re looking for.

Before you choose an S corporation for your business, make sure to thoroughly research the benefits and disadvantages of the S-corporation structure and decide if it’s the right choice for you. You can find an S-corporation tax professional at Bench, which provides year-round tax advisory support. The all-star team can file your taxes and provide check-ins throughout the year.

Final Thoughts

The S Corp Acceptance Letter is something you’ll need when you file to be an S Corp. It only comes from the IRS and there are strict deadlines. Make sure you apply for the status within the first 2 months and 15 days of your tax year and if approved, keep your letter safe.

You don’t have to refile for S Corp status once you get it, but make sure you keep your approval letter handy should you need it in the future.

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