When starting a new business, there are many steps you need to take. One of the key ones is determining the business entity you want for your company – an S-Corp, LLC, or other.
How do you determine which is best for your company, and how do you set it up? You need to work with a top accountant.
Types of Business Entities
There are several types of business entities you can select for your business. These can include:
- Sole Proprietorship: This is for a business owned and operated by one person.
- Partnership: This is for a business owned by two or more people.
- Corporation: This is a separate legal entity from its owners.
- Limited Liability Company (LLC): This hybrid entity combines the features of a corporation and a partnership.
- S-Corporation: This is a type of corporation that offers pass-through taxation.
- Nonprofit Corporation: This is for a business organized for a purpose other than making a profit.
What Is an S-Corp?
An S-Corporation (S-Corp) is a business entity offering pass-through taxation, meaning profits and losses flow through to the individual shareholders' tax returns. This can provide significant tax advantages compared to a traditional corporation.
Steps to Form an S-Corp in Phoenix
When creating an S-Corp, there are numerous steps you need to take to ensure your business is compliant. These can include:
- Choose a Business Name: Ensure your name is not already in use and complies with Arizona state regulations.
- Register with the State: File the Articles of Organization with the Arizona Corporation Commission. This involves providing information about your business name, structure, and registered agent.
- Obtain an Employer Identification Number (EIN): Apply for an EIN from the IRS. This number is used for tax reporting purposes.
- Draft Operating Agreements: Create an operating agreement outlining how your S-Corp will be managed and operated. This document is not legally required but is highly recommended.
- Meet the Requirements for S-Corp Status: To qualify for S-Corp status, your business must meet the following criteria:
- Be a domestic corporation or limited liability company (LLC).
- Have no more than 100 shareholders.
- All shareholders must be individuals or estates.
- No nonresident aliens can be shareholders.
- The corporation can only have one class of stock.
- File Form 2553 with the IRS: Within 75 days of starting your business's tax year, file Form 2553 with the IRS to elect S-Corp status.
What To Consider When Forming an S-Corp
There are numerous factors to consider when forming an S-Corp. Some of these critical factors can include:
- Permits and Licenses: Depending on your industry, you may need specific permits or licenses to operate your business in Phoenix.
- Local Regulations: Familiarize yourself with local zoning laws and regulations that may apply to your business.
- Professional Assistance: Consider consulting with an attorney or accountant to ensure you comply with all legal requirements and maximize the benefits of S-Corp status.
Benefits of Forming an S-Corp
While there are numerous types of business entities you can choose for your company, there are critical benefits to opting for an S-Corp. Some of the top advantages are:
- Pass-Through Taxation: Avoid double taxation by having profits and losses flow through to your personal tax return.
- Limited Liability: Protect your assets from business liabilities.
- Flexibility: S-Corps offer flexibility in terms of ownership and management.
- Potential Tax Savings: S-Corps can potentially save you money on self-employment taxes.
Following these steps and meeting the requirements, you can successfully form an S-Corp in Phoenix and enjoy the associated tax benefits and legal protections.
Hire Whyte CPA for Your S-Corp
Whyte CPA Tax & Accounting offers top-ranked accounting, bookkeeping, and business formation services.
With our outsourced accounting model, we offer a full suite of services that includes bookkeeping, payroll, tax reduction planning, business startup assistance, and business tax preparation.
All for a straightforward, monthly flat fee, keeping your data secure and your interactions streamlined.
Contact Whyte CPA Tax & Accounting today to experience outsourced accounting.
