Converting your business from a sole proprietorship to an S corporation is a simple three-step process.
1) Set up a corporation with your state. In Florida, corporations are set up through the Division of Corporations – Florida Department of State. They can be set up online at https://dos.myflorida.com/corporations.
2) Obtain a Federal Tax ID for your new corporation and file an S- Election with the IRS. You can obtain a Federal Tax ID by filing on the IRS’s website at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online . After you have your tax ID complete the IRS Form 2553 and file it with the IRS.
3) Open a new bank account using your new corporation and its tax ID. Then transfer any business assets and inform your customers that all future payments should be made payable to your new corporation.
Remember that for the S-Corporation it, and not your old sole proprietorship, need to be who customers do business with. Invoices should come from your new corporation. Payment should be deposited into the corporation’s bank account. Business expenses should also be paid by the corporation through the corporate bank account.
Note: S-Corporations are passthrough entities and do not pay federal income tax. They need to file federal income tax returns and all profits and losses pass through to the shareholders, who are responsible for including the profit or loss on their personal returns. Officers of S-Corporation are also required to receive reasonable compensation in the form of payroll for the corporation. For more information on S-corporations and other business entity choices, see Business Entity Choices on our website, and be sure to consult your tax advisor with any questions.