In order to lower their tax liability, small business owners frequently choose to file as a S corp. It’s crucial to comprehend the costs and drawbacks of this kind of corporate structure, nevertheless.
Let’s start by addressing the major issue: how much does it cost to register as a S corporation? The answer varies depending on the state you’re in, but generally speaking, you must submit articles of incorporation and pay a fee to your state’s secretary of state. In order to elect S corp status, you’ll also need to file Form 2553 with the IRS, and there might be a cost for that as well. Depending on where you live and whether you employ an attorney or an online service, the price can range from a few hundred dollars to over a thousand dollars.
On to the drawbacks of a S corporation. The severe eligibility rules for S corps are one of its biggest drawbacks. For instance, you are limited to 100 shareholders, and they all need to be citizens or lawful permanent residents of the United States. Additionally, S corporations are only permitted to issue one class of stock, which may restrict your capacity to generate money. Finally, S corps may incur higher accounting costs since they are subject to more complicated tax regulations than other corporate structures.
Whether owning a S corporation qualifies you as self-employed is another frequent query. The answer is that you are not regarded as self-employed if you own a S corp. Instead, you will get a salary from the company as an employee, and payroll taxes will apply to that payment. If you want to receive a regular paycheck and have taxes deducted automatically, this could be advantageous.
Who must submit Colorado Form 106, and how? All S corporations conducting business in Colorado are required to file this form in order to disclose their income. Even if your company is based outside of Colorado, you must file this form if your S corp receives income from Colorado sources.
Does Colorado automatically extend with the federal extension, and finally? No, a federal extension does not automatically extend to Colorado. You must submit a separate extension request to the state if you require additional time to submit your Colorado Form 106.
In conclusion, while registering as a S corp may offer tax advantages, it’s crucial to consider the expenses and drawbacks before making a choice. In order to prevent any penalties or fines, make sure to keep up with the state-specific laws for your S corp.