The filing of articles of incorporation with the state in which the company will conduct business is the first step in creating a S Corp. This procedure typically takes a few days to a week, but it can take longer if there are too many applications in the state or if more paperwork is needed.
The business must get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) when the articles of incorporation have been submitted and approved. The application procedure typically takes a few days, but it can take longer if more information is needed or the application isn’t complete. The business must form bylaws, choose directors, and distribute stock certificates to shareholders after getting an EIN. Because it involves careful analysis and consultation with legal and financial experts, this procedure may take a few weeks.
An S Corp is consequently compelled to pay quarterly taxes to the IRS. If you don’t, there may be fines and interest. S Corps are also obliged to submit an annual tax return to the IRS. Every year on March 15th, the tax return is due; however, businesses who require additional time to submit can request an extension.
S Corps offer several advantages over LLCs in terms of taxes. The salary is liable to payroll taxes while the dividends are not, yet S Corp owners are permitted to pay themselves a salary and receive distributions in the form of dividends. For S Corp owners, this arrangement may lead to significant tax savings.
There need not be any employees for a S Corp, but there must be at least one shareholder. If there are no employees, all duties and functions must be carried out by the shareholder. Given that it calls for the shareholder to serve in many roles, this can be difficult for some organizations.
Last but not least, when should someone switch from an LLC to a S Corp? The answer depends on a number of variables, including the company’s financial status, tax objectives, and growth strategies. In general, switching to a S Corp can be a wise option if the company is making sizable profits and the owner wishes to reduce taxes.
In conclusion, creating a S Corp can be time-consuming, but there are potential rewards. S Corps are more flexible than other business arrangements and offer tax benefits and limited liability protection. Consult with legal and financial experts if you’re thinking about forming a S Corp to be sure you’re choosing the best option for your company.