Texas recognizes the federal S election for S-corporations. S-corporations in Texas are still subject to the state’s franchise tax. Individual shareholders do not owe state tax on any portion of the corporation’s net income. To become an S-corp in Texas, you must make an election with the IRS on Form 2553 after setting up a C-corp with the State of Texas.
Requirements for S Corp Status in Texas
An S-corporation does not pay income taxes. In general, S-corps cannot own other S-corps. The exception is a qualified S-subsidiary. To be treated as a Texas S-Corp, file IRS Form 2553. Consult a tax advisor on whether this fits your business.
Starting an S-Corp in Texas
Filing as an S-corp versus a sole proprietorship limits personal liability. Creditors must seize corporate, not personal, assets. S-corps pay a 1.5% CA franchise tax on income, with an $800 minimum. Individual shareholders also owe state tax.
- Choose a Legal Business Name
- Prepare and File the Articles of Incorporation
- Create Corporate Bylaws
- Hold an Organizational Meeting
- Obtain an EIN
- Make the S Election
At MCIS Law, PLLC, we offer Texas business law services to companies of all types, from sole proprietors to some of the largest corporations in the state — we have extensive experience at all levels.
How to Convert an LLC into a S Corp in Texas? A Texas LLC is a distinct business structure, whereas an S Corporation is a tax classification option available through the IRS. LLCs can choose to be classified as an S Corporation for tax purposes.
If you are a start-up business, learning more about an S corporation formation can save you tax-wise and can help you attract venture capital. Email [email protected] for any questions.
To set up a sub-chapter S corporation, you must be a U.S. citizen and limit the shares for your company to 100. You will not be double-taxed like a C corporation, and can reduce your risk for insolvency.
What Are The Advantages of an S corporation? The primary benefit is avoiding double taxation. If you don’t want to pay corporate tax on company earnings, an S corp structure will allow you to pass those obligations onto shareholders and save money.
S Corp Pros and Cons: S Corps have their own unique set of advantages and limitations. Use the breakdown below to help decipher if opening an S Corp is the right move for your business.
Advantages of an S Corp:
- No double taxation
- Avoid corporate taxes
- Pass losses through to shareholders
- Shareholders only pay income tax
Disadvantages of an S Corp:
- Self-employment taxes
- Complex filing requirements
- Ownership restrictions
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Limited liability protection
An S corporation (S corp) emerged in the middle of the last century. You can form an S corp only after filing Form 2553 with the IRS. S corps also have additional requirements, like a limit of 100 shareholders. On the other hand, S corporations avoid double taxation, so revenue is taxed only when it passes to shareholders, which may be lower than the corporate tax rate.
Does an S Corp pay Texas franchise tax?
Texas recognizes the federal election for S-corporations. S-corporations in Texas are liable for the state’s franchise tax. Shareholders do not owe state tax on the corporation’s net income. To become an S-corp in Texas, after setting up a C-corp with the State, elect with the IRS on Form 2553.
The s-corp helps avoid taxes at the corporate level. Instead tax is paid through shareholders’ returns. Requirements to apply for S-Corp status in Texas: Be a domestic corporation, have 100 or fewer shareholders.
To be treated as a Texas S-Corp, file IRS Form 2553. Consult a tax advisor on whether this fits your business. Filing as an S-corp versus sole proprietorship limits liability. Creditors must seize corporate assets. S-corps pay a 1.5% CA franchise tax on income. Shareholders also owe state tax.
To start a corporation, file paperwork with the Secretary of State. Processing times vary; priority processing is faster. Starting a corporation protects assets, adds legitimacy. Many major companies are in Texas.