| | Tax Trap #2: Double Taxation -- Isn't Once Enough? (Site not responding. Last check: 2007-10-12) |
 | | Often the easiest way is to tell the IRS that you choose to be an "S" Corp instead of a "C" Corp. The profits of an "S" Corp are not taxable to the corporation; instead, those profits are reported directly on the shareholder's personal income tax return and are therefore only taxed once. |
 | | Should you incoporate your sole proprietorship and then decide that the "S" Corporation is the right fit, you must inform the IRS that your corporation is choosing "S" Corporation status by filing Form 2553, which is, in effect, an application to become an "S" Corporation. |
 | | Failure to file Form 2553 on time or filing Form 2553 incorrectly results in a rejection of your corporation's "S" Corp application, and the corporation is then by default treated as a "C" Corp, subject to double taxation, the very trap you were trying to avoid. |
| pubs.logicalexpressions.com /Pub0014/LPMArticle.asp?ID=109 (661 words) |