To start your S-corp, fill out the articles of incorporation with your company’s information and file Form 2553 through the IRS. Your company must have no more than 100 shareholders and one class of stock.
Cost of Setting Up an S Corp
General costs include:
- Articles of Incorporation filing fees, typically around $100 to $250.
- Corporate Seal, usually around $50.
- Payroll processing fees vary but expect at least $45 per month.
Taxation and Structure
S corps don’t pay corporate taxes. Instead, shareholders report income on personal tax returns. Shareholders don’t pay self-employment tax on profits. An S corp passes income directly to shareholders. The main difference between an S corp and a C corp is how each is taxed: C corps are taxed first at the corporate level, then shareholders pay taxes on dividends.
Considerations Before Forming an S Corp
Before you form an S corp, consider:
- Is an S corporation the best strategy for your business?
- S corporation requirements and restrictions.
- An LLC may be a better structure.
- Are S corp tax benefits right for you?
Post-Formation Procedures
Once approved, you will receive Notice CP261. You’ll then need to file Form 1120S with the IRS each tax year and a state S Corporation tax return, if applicable. An S-corp offers owners three options for paying themselves: by salary, distributions, or both. The right choice depends on finances and contributions.