How to Form S Corporations in Raleigh, New Bern or Morehead City
Skilled business lawyers provide attentive legal support to North Carolina entrepreneurs
Once you’ve incorporated your business to protect your personal assets from claims against the company, it’s time to consider the possible tax advantages of subchapter S designation. Becoming an S corporation (S-Corp) can benefit your shareholders, since it allows owners who work for the company to have some income taxed as wages and the remaining amount as disbursements, which are taxed at a lower rate. An experienced corporate attorney at Howard Stallings can explain the pros and cons of S-Corp designation and guide you through the application process.
What is an S corporation?
An S-Corp is simply a corporation that operates under a special Internal Revenue Service tax status. With an S corporation, you pay no tax on corporate profits. The profit from the business passes to the owners, who report it on their personal income tax returns as wage income and/or disbursements. This allows you to pay a lower rate on some of your earnings. It also saves you from having to pay 15.3 percent of your income from the company in self-employment taxes, a definite advantage over the regular LLC.
Is electing S corporation status right for your business?
All corporations offer limited liability, so why would you want to elect S-Corp status for your company? A primary reason is to reduce self-employment taxes. However, there are caveats. An S-Corp cannot have more than 100 shareholders, and every shareholder must be a U.S. resident or citizen. Employee shareholders must receive reasonable compensation for the work they do for the company: paying very low wages but awarding lavish disbursements will draw the attention of the IRS. S-Corps are also higher maintenance: the IRS requires regularly scheduled director and shareholder meetings and heightened recordkeeping. An experienced attorney at our firm can provide more detailed information on S-Corps, as well as LLC formation, partnerships and C corporations.
How to elect S corporation status
Forming an S corporation is straightforward. First, you start a business as a corporation by filing articles of incorporation with the Corporations Division of the North Carolina Secretary of State’s Office. Next, to elect S corporation status, all shareholders in your company must sign and file Form 2553 with the IRS.
Let a highly qualified legal team assist with your business in Raleigh, New Bern or Morehead City
If you need experienced and trusted legal help in forming an S corporation in North Carolina, Howard Stallings can help. Our business attorneys provide sound advice based on decades of business law experience. To speak with a savvy business law attorney at our firm, call 919-821-7700 or contact us online today.