Facts
In fact, C Corporation is a legal tax status, and it is not a business type or category. To the IRS all the commercial identities are considerate C corporation which means double taxation purposes. The only method allowed by the IRS to be a S corporation is to request and file the Form 2553.
Corporate taxation levels are avoided with the form 1120-S. C Corporation is a separate individual or identity from its shareholders.
From state business law view, the origin of all the corporation is C corporation tax purposes. However, there two types of corporations for deferral tax law purposes today : C corporation and S Corporation. The main difference is the way these two corporation are taxed. Under the state law, asset protection purposes and compliance
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Analysis
Hawaiian Memories, Inc needs to have the following characteristic required by the IRS to be considerate an S Corporation.
1. Be a LLC or Domestic corporation which it is a C corporation, but Angie is consider the option to go back to Swedish.
2. Its stock must be Common Stock or Preferred Stock. This requirement is not meted.
3. No exceed the 100 shareholders. Actually, Hawaiian Memories incIt has less than 100 shareholders.
At this point, the option to convertible or non-convertible preferred stock must be discusses to analyzed the second characteristic of a S Corporation. It is a dominant option for stockholders to convert their preferred stock to common stock which Angie and Bob might take advantages of this.
Future earnings are going to be part of the shareholder earnings, therefore; each shareholder is responsible for the tax liability according each percentage of ownership.
Hawaiian Memories, Inc. is not going to be able to deduct the full contribution for health insurance which it is the 10% of each employee’s salary. As an S Coporation payroll taxes represent tax savings as paid