If you’ve legally established your business as a C Corporation or Limited Liability Company (LLC) that has elected to be viewed as a corporation for tax purposes, you have the option of filing IRS Form 2553 to get S Corporation tax treatment.

Why would you want to do so, you ask? Because it could make a big impact on your business’s bottom line.

The Potential Advantage for LLCs

LLC owners who find themselves with a high self-employment tax burden might benefit from choosing the S Corp election. LLCs are normally taxed like sole proprietorships—with all business profits subject to self-employment taxes. With S Corp tax treatment, self-employment taxes are only applied to wages and salaries rather than on all business profits.

The Potential Advantage for C Corporations

C Corporations can benefit from S Corp election because it avoids the costly double taxation C Corps normally face.

As a completely separate entity from its owners, a C Corp essentially pays taxes twice on its income:

1) When the corporation makes money, it files a tax return and pays taxes on those profits, and

2) If the corporation distributes profits to shareholders, those distributions get taxed again on the shareholders’ personal tax returns.

If a C Corporation opts to be treated as an S Corp for tax purposes, however, the business itself doesn’t file its own taxes. Instead, shareholders report their individual shares of the business’s profits and losses on their own personal tax returns.

For instance, if you’re an S Corporation shareholder with 50 percent ownership of the business, you would pay taxes on 50 percent of the profits. That income would be taxed as a profit distribution, and you might get a favorable tax rate. Note that you would also pay taxes on any income you received as wages and salaries (and that portion of your income would be subject to self-employment taxes).

Ultimately, the advantage of filing for S Corporation tax treatment comes from the fact that the corporation doesn’t pay taxes on its profits—all profits flow through to the individual shareholders’ tax returns.

Heads Up: The S Corporation Election Deadline Is Approaching

To make the S Corp election, you need to file Form 2553. If you want the election to be effective in the next tax year, you can file at any time during the tax year prior. If you’re filing in the year you want it to be effective, you must do so no more than two months and 15 days after the beginning of the tax year. According to the IRS, the “2-month period begins on the day of the month the tax year begins and ends with the close of the day before the numerically corresponding day of the second calendar month following that month. If there is no corresponding day, use the close of the last day of the calendar month.”

For existing C Corporations and LLCs, you have until March 21 to take the S Corp election for 2017.

New companies have 75 days from the date of their incorporation to file Form 2553. If they meet that deadline, they’ll receive S Corp tax treatment starting in their first tax year.

IRS Form 2553 provides additional detail about the filing deadlines and other important information, including S Corporation election eligibility restrictions.

Time Is Of The Essence For 2017

If you’re considering the S Corporation election for 2017, I recommend talking with a tax advisor to determine the potential impact it will have on your businesses tax obligations. If you find it is a great fit for your business, contact CorpNet as soon as possible to take care of filing your Form 2553 so you have the peace of mind it’s completed accurately. There’s still time (but not much!) to get it done before the deadline.