An S corporation, kept to the receipts that matter
Setting up an S corp on a small budget, receipt by receipt
Which costs the state and the IRS actually require, how to file Form 2553 yourself, and which service charges you can leave on the counter. Every fee is named for who sets it, so you can look up your own state rather than trust a number printed for someone else's.
Slip A
State filing fee
Articles filed with your state
Set by the state
Slip B
Form 2553
The S election, sent to the IRS
No IRS charge
Slip C
Registered agent
An address that accepts legal papers
Yourself or a service
Slip D
Payroll
A salary for the owner who works
Every pay period
-
Words, not totals
A fee is described by who sets it and when it falls due. Where an amount appears, it comes with the agency that publishes it.
-
Required kept apart from optional
What the law asks for sits on one spike. What a service would like to sell you sits on another.
-
No scores, no rankings
Where one route suits better, it is said in plain words, with the reason beside it.
Sort, sign, file
How an S corporation actually gets set up
The S election is a request to the IRS about how an existing company is taxed. Setting one up is a short run of filings, and most of them cost nothing but your time.
-
Form the company with your state
An S corporation is a tax status, not a kind of company. You first form an LLC or a corporation by filing with your state.
Paid tothe state
-
Get an EIN
The election and the payroll both need a federal employer identification number. The IRS issues one online, in one sitting.
Paid tonobody
-
File Form 2553
Every shareholder signs it, and it has to reach the IRS early in the tax year the election should cover. The IRS has a relief route for a late one.
Paid tonobody
-
Check what your state does with it
Most states follow the federal election. A few ask for a separate state form, and a few tax S corporations their own way.
Paid todepends on the state
-
Put yourself on payroll
An owner who works in the business is paid a reasonable salary through payroll, with withholding, before taking distributions.
Paid toa provider, or your time
On the spike
The costs you cannot skip
These are owed whoever does the paperwork. A budget S corporation is one that pays these and very little else, and knows which of them come back every year.
-
The state filing fee
Filing articles of incorporation or organization is the one charge no one can do for free. The state sets it, and it varies a great deal from one state to the next.
Expedited processing is an extra the state sells on top; it is optional.
-
A registered agent
Every state requires one: a person or company with a physical address in the state, available in business hours to accept legal papers.
In most states you can act as your own, at the cost of your address on the public record.
-
Annual reports and franchise taxes
Most states want a report each year or every other year, and some add a franchise tax or a minimum tax on top.
Missing one can put the company out of good standing, which costs more to fix than to file.
-
Form 1120-S, every year
The S corporation files its own federal return and issues a Schedule K-1 to each shareholder, even in a year when it owes no tax itself.
Preparing it is the cost most owners pay a professional for, and the easiest one to forget when budgeting.
-
Running payroll
A salary means withholding, payroll tax deposits and quarterly and annual payroll returns, for as long as the election stands.
It can be done by hand. Most single-owner companies use a payroll provider instead.
Left on the counter
What a service sells that you can do yourself
Formation services package the free and cheap steps alongside the required ones. None of these is wrong to buy; each is worth knowing you could do without.
-
Getting the EIN for you
- Doing it yourself
- The IRS application is online and free, and gives you the number at the end.
- Worth paying for
- Rarely. It is one of the simplest steps in the whole process.
-
Filing Form 2553 for you
- Doing it yourself
- Fill in the form, collect every shareholder signature, and fax or mail it to the IRS address for your state.
- Worth paying for
- When the deadline is close, or when you want someone checking the effective date.
-
A registered agent service
- Doing it yourself
- Name yourself, if you have an address in the state and are there during business hours.
- Worth paying for
- When you work from home and want that address off the public record, or move around.
-
Operating agreement or bylaws
- Doing it yourself
- Free templates exist, and a single-owner document is short.
- Worth paying for
- When there are several owners and the document has to settle who decides what.
-
Compliance reminders
- Doing it yourself
- Put the annual report, Form 1120-S and payroll deadlines in your own calendar.
- Worth paying for
- When the cost of a missed deadline outweighs the cost of being reminded.
-
Formation bundles
- Doing it yourself
- Each item in a bundle is one of the steps above, done separately.
- Worth paying for
- When you would rather buy the steps you dislike than learn them. Read what each tier actually includes.
In the shoebox
Questions a budget S corp has to settle
The questions owners ask before electing and in the first year after, sorted by when they usually come up.
Is it worth it
- At what level of profit does the election start to cover its own running costs?
- What does the election change about self-employment tax?
- Does an S corporation save anything in a year with a loss?
Doing it yourself
- Should the company be an LLC or a corporation before it elects?
- Can I file Form 2553 without an accountant?
- Can I be my own registered agent, and what does it expose?
Keeping it running
- Does a one-person S corporation really need a payroll provider?
- How is a reasonable salary decided?
- What happens if a state annual report is missed?
Who can elect
- Which shareholders does the IRS allow, and which disqualify the company?
- What does the one-class-of-stock rule mean for an LLC?
- How is an election revoked if it stops paying for itself?