What is an S Corp? Your Guide to S Corporations

We will also scan and make them available in our Online Status Center for you to access before receiving the originals. You can prepare and file the Articles of Incorporation yourself, but you should understand the corporation formation requirements of your intended state https://business-accounting.net/ of incorporation. S corporations can have no more than 100 shareholders, and all shareholders must all consent in writing to the S corporation election. BizFilings is confident in its ability to deliver S Corp formation services that exceed customer expectations.

The business’s remaining profits are distributed as dividends. The S corp’s somewhat Learn about creating an S Corporation foggy formation process is not the only thing that creates confusion.

Electing S-Corp as an LLC

As an owner, you are considered an employee of the business and must pay yourself a reasonable salary. An S corp’s profits, losses, deductions and credits are taxed at the shareholder level. The “S” in S corp. stands for “subchapter,” because an S corp. is a subchapter corporation. Whenincorporating a business, you’ll first form a C corp. that must meet S corp. requirements to be so classified. If you form an LLC, you’ll also need tofile IRS Form 2553to elect a tax classification.

• This makes the S corporation status very attractive to many small businesses.
• Our State Incorporation Feesguide provides the filing fee for each state.
• When an S corporation’s owner incurs a disabling illness or dies, the corporation does not cease to exist.
• In some states, the registered agent must also sign your incorporation documents.
• It is important for your company name to project the image you want for your new business.
• Before setting up an S-corp, you’ll need to apply for an employer identification number.

An S-corp is an excellent option if you plan to build a business that will last, not just a side hustle you plan to sell in a few years. The corporation remains in existence from the date the Secretary of State endorses the Articles of Incorporation and continues until it formally dissolves.

Doing Business in California and Other States

As you’ll see in our discussion of benefit corporations, some types of business are very recent developments indeed. Unlike an LLC, however, which pays tax on the entire net income of the business, an S-Corp is taxed only upon the wages of shareholders who are also employees. Any additional income is allocated to members/shareholders as a distribution. Distributions are taxed at a much lower rate than employment taxes. Alternatively, an LLC may be taxed as an S corp, which means the member must be paid a reasonable salary. The LLC reports the owner’s salary as a business expense and deducts payroll taxes.

Appointing yourself registered agent for your company sounds like it might be the simplest solution, but in fact, it’s not advisable. Understanding the differences between an S corp and a C corp could save you money, time, and headaches. But there are also some disadvantages, and not every business is eligible to be an S corp.

S Corporation

A limited liability company is a business structure that protects the personal assets of the business’s owners (referred to as “members”). Suppose the business gets tangled in legal troubles or is sued by a debt collector. In that case, the plaintiff or creditor can only go after the business’s assets, not the LLC members’ personal assets. An LLC that is treated as a corporation can also pay owners a salary. If your LLC makes a profit after paying owners a reasonable salary, you might save money on taxes by electing S corporation taxation. Owner-employees must pay themselves a reasonable salary for their work.

The IRS has specific requirements in order for a business to be able to make the election at all. Our Business Specialists will form your new business the correct way, saving you time and money by avoiding costly errors. Let us handle your business filings while you focus on growing your business.

Can I set up an S corp myself?

BizFilings can obtain S corp status on behalf of your business as part of our Complete Incorporation Service for S corporations. Starting an S Corporation provides limited liability protection to owners, offers special IRS tax status and more. If you’re a new LLC, you must apply for S corp status within 75 days of the formation of your LLC or no more than 75 days after the beginning of the tax year in which the election is to take effect. For an existing business, you would file at any time during the tax year preceding the tax year it is to take effect.

Also, a few states have taxes that are applicable specifically to S corporations. Having an LLC that files as an S corporation generally means more paperwork. If you don’t already have to do payroll for your business, being an owner-employee means that you’ll have to do so. Once your LLC or C corporation formation is approved by the state, you need to file Form 2553, Election by a Small Business Corporation, to get S corporation status. Have only allowable shareholders or members, which includes individuals, certain trusts, and estates. The shareholders may not be partnerships, corporations, or non-resident aliens.

Self-Employment Tax

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• The LLC will also be treated as an S corporation for the state and must file Form 100S .
• As an owner, you are considered an employee of the business and must pay yourself a reasonable salary.
• They usually make only major business decisions, and appoint and supervise officers, who make the day-to-day business decisions.
• Because flow-through taxes will be paid at the personal rate, high-income shareholders will pay more taxes on their distributions.
• The business may only issue one class of stock — this means all members must have the same distribution amount.
• If you want to form an LLC with S corporation status, our S corp service can help you do just that.

We know your time is valuable, so our Business Specialists start working on your filing ASAP. The Tentative Corporate Tax Return (SC1120-T) is due on or before the 15th day of the third month after the close of the taxable year. File annually on or before the 15th day of the third month after the close of the taxable year except for the initial and/or final return. The Withholding Tax on Income of NonResident Shareholders (SC1120S-WH) must be submitted separately from the S Corporation Income Tax Return for processing purposes.