Cost of S Corp: Everything You Need to Know
The cost of S Corp entities is something you need to consider before you begin seeking this type of business. 3 min read
The cost of S Corp entities is something you need to consider before you begin seeking this type of business. When you have a rough idea of how much this process costs, you can budget accordingly. You can also make sure that you have enough funding to finish the entire process, avoiding a lack of funds halfway through. After all, effectively managing your finances will ensure both short- and long-term success.
What Are the General Costs of Incorporating?
Corporations are considered to be separate entities. This means that owners and shareholders are not personally responsible for the company's debts. In addition, owners only pay taxes on the profits paid to them in the form of bonuses, dividends, and salaries.
In terms of costs to incorporate, there are four fees you need to be aware of, including:
- A fee charged when filing the Articles of Incorporation
- A first-year franchise tax payment
- Fees for government filings
- Associated attorney fees
In order to officially start a corporation, you will need to file Articles of Incorporation with the Secretary of State. The fee associated with this step will vary, as it may be a set fee, it may be based on authorized shares, or it may be calculated based on a combination of the two. Typically, filing fees are between $100 and $250, depending on the state. The franchise tax fee is essentially paid in order to conduct business in a specific state. Once again, this fee ranges from $800 to $1000. It is important to note that not all states charge this tax, including Nevada.
In terms of government filing fees, corporations need to pay between $50 and $200. The total fee will be based on the type of business you wish to incorporate and the state in which this process is completed. Although it is possible to create a corporation without the assistance of an attorney, it is often recommended that you seek professional assistance at this time. What you will pay depends on a multitude of factors.
When considering the type of business you would like to form, know that LLCs and S corporations offer major advantages. For example, both of these entities protect the personal assets of business owners. In addition, these entities avoid what's known as double taxation. Both S corporations and LLCs can also deduct expenses, including equipment, advertising, car expenses, and much more.
If you are considering LLC formation, here are some of the advantages:
- If you own a single-member LLC, you do not need to file a tax return for the LLC itself. All activity will be reported on your personal tax return.
- This type of business is easy to set up.
- LLCs are inexpensive to start.
- Guidelines and requirements are more flexible in comparison to the S corporation formation.
In comparison, some of the major disadvantages include:
- LLC owners need to pay self-employment tax on all generated income.
- Owners need to ensure that they operate their LLC separately from their personal life.
While focusing on the benefits of an S corporation, this type of business enjoys tax benefits associated with excess profits — otherwise known as distributions. Overall, S corporations cost more to form and have more strict guidelines.
Some Considerations Before You Form an S-Corp
Being a corporation that has elected to be taxed under Subchapter S, an S-Corp was originally designed to bridge the gap between domestic corporations and partnerships. Unlike a regular corporation, S corporations do not face double taxation. This means that all profits and losses are passed onto the company's shareholders.
Please be aware that if your form an S corporation, you must withhold and then pay Medicare and Social Security on behalf of employees. Also, know that you can not surpass more than 100 shareholders and you can only have one class of stock.
Understanding all associated fees, in addition to your responsibilities as an S corporation owner, you can ensure that your company remains in good standing. Although it is initially more expensive to form an S-Corp, you will enjoy a wide range of benefits — especially in terms of taxation. If it any point in time you have questions, it is recommended that you seek legal advice.
If you need help to determine the cost of S-Corp formation and operation, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.