You might want to think about filing as a S corporation, or S corp, if you operate a business in California and wish to incorporate it. A type of corporation known as a S corp enables a company to avoid double taxation on both the corporate and individual levels. Although forming a S corporation in California is a very simple process, it’s crucial to understand the steps, fees, and tax ramifications before you start.
Choosing a corporate name and reserving it is the first step. Selecting a name for your firm that is original and has not already been taken by another company is the first step in registering as a S corporation in California. By using the company name database maintained by the California Secretary of State, you can determine whether the suggested name is available. Once you’ve located an available name, you can reserve it with the Secretary of State’s office for up to 60 days by submitting a Name Reservation Request. A name reservation will run you $10.
Articles of incorporation must then be submitted to the California Secretary of State. The fundamental elements of your corporation, such as its name, function, stock structure, and registered agent, are established in this document. In California, there is a $100 filing cost for articles of incorporation.
The IRS must issue each S corporation with an Employer Identification Number (EIN). In order to identify the corporation for tax purposes, use this number. The IRS website offers an online application for an EIN that is free of charge.
Step 4: Submit Form 2553 to the IRS You must submit Form 2553 to the IRS in order to be recognized as a S corp for tax purposes. By submitting this form, your corporation notifies the IRS that it has chosen to be taxed as a S corp. This form must be submitted within two months and fifteen days of the start of your corporation’s tax year, or by the third month’s 15th day, whichever occurs first. Form 2553 can be submitted for free.
The $110 filing price for a S corporation in California consists of a $10 name reservation fee and a $100 filing charge for the articles of incorporation. However, you might want to think about using an online legal service or hiring a lawyer to help with the procedure, which could result in extra fees.
S corporations in California are exempt from the state’s franchise tax, but they are still required to pay state income taxes. S corporations, on the other hand, are taxed more like partnerships than corporations, which means that the corporation’s gains and losses are passed through to the shareholders’ personal income tax returns.
When should you register as a S corporation? The choice to become a S corp depends on a number of criteria, including the size of your firm, expected profits, and tax condition, therefore there is no universally applicable answer to this topic. S corporations often work well for small to mid-sized companies with fewer than 100 shareholders that want to avoid double taxes. Who Pays More Taxes, an LLC or a S Corp? Depending on the size and structure of your firm, there can be a difference in the tax consequences of incorporating an LLC vs a S corp. S corp stockholders often pay employment taxes only on their salary, not on their portion of the company’s profits, whereas LLC owners typically pay self-employment taxes on all of their business income. However, the choice of whether to set up an LLC or S corp should take into account a number of aspects, such as tax effects, management structure, and liability protection.
Choosing a corporate name, filing articles of incorporation, acquiring an EIN, and submitting Form 2553 to the IRS are the last procedures in forming a S corporation in California. The filing fee is $110, but if you decide to work with a lawyer or an online legal firm, you can pay more. S corporations in California are exempt from the state’s franchise tax but are required to pay state income taxes. The choice between forming an LLC and a S corp can have different tax ramifications, so you should base your selection on the particular requirements and circumstances of your company.