Our dedicated team of Tax and Accounting Specialists is here to support you every step of the way as you navigate the process of electing to become an S corp. We will carefully review your information to determine which steps you’ll need to take in order to be eligible to elect.
If you haven’t already done so, you may want to first review: What an S Corporation is what it means for your private practice, and Preparing to elect as an S Corp.
Contents
- Should I elect as an S Corp?
- Heard's general recommendations
- Filing the election paperwork
- Verifying the election has been accepted
- What if the IRS denies S Corp election?
- What steps can I take if I haven't received any updates from the IRS?
Should I elect as an S Corp?
As a private practice therapist with a domestic entity (such as an LLC, PLLC, or PC), you can elect to be taxed as an S Corporation (S Corp). However, we recommend that your profits reach a sufficient threshold and that you maintain a steady income stream to benefit from reduced tax liability fully. For more, please see What is an S Corporation, and what does it mean for your private practice.
To qualify for an S Corp tax status, a business must meet specific requirements, including:
- Domestic Corporation: It must be a U.S. corporation.
- Eligible Shareholders: Shareholders must be individuals, certain trusts, or estates; other corporations and partnerships cannot be shareholders.
- Limited Number of Shareholders: There can be no more than 100 shareholders.
- Single Class of Stock: It can only issue one class of stock, although voting rights can vary.
- Timely Election: The corporation must file Form 2553 with the IRS to elect S Corporation status.
Heard’s general recommendations
Heard has established specific criteria to determine if your private practice qualifies for the S Corp election and whether it would provide you tax-saving benefits. Once you express your interest in electing S Corp status, one of our Tax and Accounting Specialists will thoroughly review your Heard profile, documents, and tax returns as part of this process. There are three main components we will review:
- Review Profit & Loss statements for profitability
- Verify entity formation filing
- Ensure your EIN was issued after entity formation
Once we have completed our review, we will share the results with you and inform you of our recommended next steps.
Please make sure to upload both EIN and Articles of Incorporation documents (if applicable) are uploaded to Your Practice > Documents > Incorporation for a quicker processing time.
Filing the election paperwork
A Heard Tax and Accounting Specialist will prepare Form 2553, Election by a Small Business Corporation, for your review and signature. You can find the pre-filled copy in your Heard documents. Please carefully review the information on the form for accuracy and inform the Specialist of any incorrect data.
Please note: You must complete it in actual ink, as the IRS will only accept Form 2553 if they can tell it was physically signed. Please print both pages of Form 2553 and complete the sections below:
Page 1:
- At the bottom of the page, next to "Sign Here" Sign and date.
- If your EIN request for your corporation was originally issued under either a different name and/or address, check the appropriate boxes on line D.
Page 2:
- On the first line of the table, to the right of your name and address:
- In column K, add your Signature and Date.
- In column M, enter your SSN.
- If you are married and live in a community property state, the IRS also requires your spouse's consent if you're married. Please ensure they sign and date in column K. Your spouse will sign in the same box as you, as the IRS considers your shares as jointly owned community property. They do not need a separate row in the list of shareholders as they aren't a separate shareholder.
Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Once completed, you will need to scan the document and upload it to your Heard documents. We will review and fax your application to the IRS. After Form 2553 is submitted to the IRS, you can expect to receive a confirmation notice CP261 in the mail within 60 days. This notice will let you know that your election has been approved.
Verifying the election has been accepted
The IRS issues notice CP261 by mail within 60 days of accepting the S Corp election (Form 2553). This form outlines the effective date of your S Corp. This is a critical document to keep on record as it confirms you are operating in compliance with IRS regulations.
Please upload Form CP261 to your Heard account and notify us as soon as you receive either CP261 or another notice from the IRS related to your election. You'll need to upload the notice to Your Practice > Documents > Taxes.
If your election is accepted, we'll start transitioning you over to S Corp in Heard.
- Transition your bookkeeping to account for your tax entity change in the most accurate manner possible. S Corps requires specific bookkeeping based on when the IRS accepted your election.
- Determine a reasonable salary.
- Assist in setting up payroll.
- Create an Accountable Plan.
What if the IRS denies S Corp election?
If the IRS denies your S Corp election, you will receive a CP264 Notice that will explain the reasons for the denial and provide information on when you can reapply.
This could be due to errors on the S Corp filing form or failure to meet eligibility requirements. Please upload a copy of the notice to Heard documents and contact our team to discuss your options to re-elect.
What steps can I take if I haven't received any updates from the IRS?
If you haven’t received a notice within 60 days, please call the IRS at 1-800-829-4933 to check on your status.
It’s really important to follow up, as we can only move forward with your S Corp transition once the IRS confirms that your election has been accepted. Although we cannot call on your behalf, we're here to support you through this process, and you can reach out to Support with any notices you receive.