Key Takeaways

  • Costs to start an S Corp vary by state, business needs, and level of professional assistance.
  • Common one-time expenses include state filing fees, registered agent services, and legal formation help.
  • Ongoing costs like payroll services, accounting, and tax filing must be considered for compliance.
  • Some states impose franchise taxes or minimum annual fees regardless of income.
  • Choosing the right state for incorporation can significantly affect your startup and maintenance expenses.
  • Filing Form 2553 with the IRS is required for S Corp status—this has no cost but must be done timely.

How much does it cost to start an S corporation? There are a variety of fees that will need to be paid in order to incorporate a business. When a business is incorporated, it business evolves from a general partnership or sole proprietorship into a legally identified entity, separate from the owners who initially founded it.

What Are the General Costs of Incorporating?

There are normally four different fees that will need to be paid in order to incorporate. They include:

  1. Filing the articles of incorporation: The articles of incorporation will need to be filed with the Secretary of State (SOS). The filing fee will vary by state, may be a set fee, and may be calculated based on the authorized number of shares. The SOS will typically charge between $100 and $250 for filing and administrative fees. The exact fee can be obtained by visiting your specific state's SOS website.
  2. Franchise tax prepayment: States charge corporations a franchise tax for doing business in their state. The fee typically charged will vary by state between $800 and $1,000. Some states, like Nevada, don't charge a franchise tax fee, making them an alluring place to do business.
  3. Miscellaneous government filing fees: Government filing fees may vary from $50 to $200 depending on the state and the type of business.
  4. Lawyer fees: It is possible to incorporate a business without an attorney, but it's not recommended, as it can be an extremely complex endeavor. Many business owners attempt to incorporate on their own, but end up making errors in judgment causing them great legal pain. Law firms typically offer flat fees between $500 and $700, yet some may charge more than $5,000 depending on the complexity.

One-Time vs. Ongoing Costs

When evaluating how much it costs to start an S Corp, it’s crucial to distinguish between one-time startup expenses and recurring operational costs.

One-time startup costs include:

  • State incorporation filing fees (typically $50–$500 depending on the state)
  • Registered agent fees ($100–$300 per year if using a service)
  • Name reservation fees (optional, around $10–$50)
  • Legal or incorporation service provider fees (can range from $0 with DIY filing to $500+ for full-service platforms)
  • Employer Identification Number (EIN) – free through the IRS, but some providers charge to obtain it

Ongoing costs include:

  • Annual reports and franchise taxes (state-dependent; e.g., California has an $800 minimum franchise tax)
  • Payroll service fees for reasonable compensation ($20–$100/month on average)
  • Bookkeeping or accounting software/services ($200–$2,000+ annually)
  • Tax preparation for S Corp returns (often $500–$1,500 depending on complexity)

Budgeting for both sets of expenses will help you maintain S Corp compliance and avoid penalties.

How to Choose Your State of Incorporation

Incorporation costs and benefits will vary by state. It's important to research the most beneficial environment for your business to thrive before deciding on where to incorporate. If you're intending to do business only in one state, then it's usually smart to incorporate in that specific state. If you decide to incorporate in a state outside your home state, it's important to consider the following subjects:

  • State income tax rate
  • Corporate laws
  • Responsibilities and rights of the stockholders and creditors
  • Deciding on whether to be a C corporation or an S corporation

State-Specific Filing Costs and Taxes

Filing and maintenance costs for S Corporations vary significantly depending on where you incorporate. While some states offer low incorporation fees, they may impose high annual taxes or reporting requirements.

Examples of state-specific costs:

  • California: $100 incorporation fee + $800 minimum franchise tax annually.
  • Delaware: $89 filing fee for corporations + $225 minimum franchise tax.
  • Texas: No state income tax, but corporations must file an annual report and pay a franchise tax if revenue exceeds $2.47 million.
  • Florida: $70 filing fee + $150 annual report fee.

If you plan to operate primarily in one state, it's generally more cost-effective to incorporate there rather than in a “corporate-friendly” state like Delaware unless there’s a strategic reason.

C Corp and S Corp

S corporations have limitations on the kind and number of shareholders that the corporation may have. The only significant difference between a C corporation and an S corporation is that an S corporation is viewed as a sole proprietorship or partnership for taxation purposes.

Costs and Drawbacks of an S Corporation

One of the main advantages to incorporating as an S corporation is that it's treated as a pass-through entity for federal income tax purposes. Income, as well as tax credits, deductions, and losses, are passed through to the individuals, rather than at the corporate level.

Incorporating as an S corporation may burden some small businesses with extra costs and other drawbacks. Establishing your business as an S corporation should be thoroughly researched before implementing, as it does have a substantial number of drawbacks and costs. The three main drawbacks to forming an S corporation are:

  1. S corporation excise taxes and state fees: The costs to maintain and form the S corporation will need to be paid. This includes an annual filing fee, possible excise taxes, and/or franchise taxes.
  2. Additional tax return preparation costs: A tax accountant will need to be hired in order to file the state and federal tax returns. A modern computer accounting system will most likely need to be purchased in order to generate the data that is needed to file the income tax returns. Also, an employee payroll department will need to be created to track and issue paychecks.
  3. New miscellaneous operating costs: Unanticipated new costs relating to insurance and accounting tasks may arise. Forming an LLC or corporation may trigger additional insurance costs to be passed on to your business. Also, some states may force you to have a CPA audit or review your financial statement.

Additional Considerations When Estimating S Corp Costs

Beyond setup and maintenance, several indirect or hidden costs may influence how much it costs to start an S Corp:

  • Reasonable Salary Requirements: As an owner-employee, you must pay yourself a reasonable salary subject to payroll taxes. This requires payroll setup, which adds to the administrative burden and cost.
  • Professional Fees: Many S Corp owners choose to consult tax professionals or attorneys to ensure compliance, which can range from $150 to $400/hour.
  • Software Subscriptions: To manage payroll, books, and taxes, subscriptions to tools like QuickBooks or Gusto may be necessary.
  • IRS Form 2553 Filing: While free, improper or late filing can disqualify your S Corp status and cost you tax benefits.

These considerations are essential when deciding if the tax savings of an S Corp outweigh the added complexity and compliance obligations.

Frequently Asked Questions

  1. How much does it cost to start an S Corp on average?
    Startup costs typically range from $300 to $1,000, depending on the state and whether you hire professionals for help.
  2. Do I need to pay the $800 California franchise tax if my S Corp has no income?
    Yes, California imposes the minimum franchise tax even if your S Corp earns no income.
  3. Is forming an S Corp cheaper than an LLC?
    Forming an LLC may be less expensive upfront, but S Corps can offer tax advantages that offset higher compliance costs in the long run.
  4. Can I file for S Corp status myself?
    Yes. You can file IRS Form 2553 for free, but ensure accuracy and timeliness to avoid disqualification.
  5. Do I need an attorney to start an S Corp?
    Not necessarily, but consulting an attorney can help avoid mistakes. You can find experienced S Corp attorneys on UpCounsel if you need legal support.

If you need help determining how much does it cost to start an s corp, 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.