Nevada C Corporation: Everything You Need to Know
A Nevada C-corporation is business incorporated in the state of Nevada that has not yet become an S-corporation. 3 min read
2. C-Corporation and S-Corporation Differences: Federal Taxation
3. C-Corporation and S-Corporation Differences: Compensation of Officers
4. C-Corporation and S-Corporation Differences: Capital Accumulation
A Nevada C-corporation is business incorporated in the state of Nevada that has not yet become an S-corporation. Any corporation formed in Nevada begins as a C-corporation and remains one by default until it takes the steps necessary to become an S-corporation.
Forming Your Business in Nevada
If you are wondering when a Nevada C-corporation becomes an S-corporation, this guide will answer all of your burning questions.
Although many believe that S-corporation election must occur when a corporation is initially formed, this is not the case. Since there is no state income tax in Nevada, the state does not recognize the federal S-corporation election.
If you have formed or plan on forming a corporation in Nevada, it is important to understand the difference between C- and S-Corporation. By understanding key differences between the two, you will become more aware of certain restrictions that apply to one over the other.
Based on your corporation's specific circumstances, it is imperative that you discuss your options with an attorney, tax advisor, or accountant. By seeking this professional advice, you can make more informed decisions.
If you are currently incorporated and you do nothing, you will simply remain a C-corporation. In order to become an S-Corporation in Nevada, you will need to do the following:
- Obtain consent from all shareholders.
- Complete the Form 2553 with the IRS.
- Determine what, if any, taxes apply to S-Corporations in the state of Nevada.
C-Corporation and S-Corporation Differences: Federal Taxation
If you are currently a C-corporation, the following is true:
- You will be required to file a corporate tax return.
- You must pay taxes on your profits, while shareholders are not taxed based on the corporation's profits but on what they were paid by the corporation. In this case, if you paid a shareholder $60,000, they will report that amount on their personal tax return. This also includes any dividends paid to shareholders.
- Shareholders must report after-tax profits passed along by the corporation — even though corporate taxes will have already been paid on that amount. Known as double taxation, this can be avoided when you become an S-corporation. The rules are different for S-corporations:
- If you have more than one shareholder, you will need to file an informational K-1 tax return, but the corporation itself will not pay income taxes.
- Instead, each individual shareholder will report their portion of the corporation's profits on their personal tax returns. They will be taxed at the individual rate. Shareholders will also be able to offset other income based on the corporation's losses.
Please note that S-corporations are not recognized by some states, including Nevada. In this case, an S-corporation will still enjoy federal tax savings — but they will be treated as a Nevada C-corporation on the state level. When conducting business in Nevada, you will want to research any requirements in terms of state operations and taxation. This can be discussed with your accountant or attorney.
C-Corporation and S-Corporation Differences: Compensation of Officers
If you are an owner-employee of an S-corporation, you must be paid wages based on the work performed. This means that you cannot avoid payroll by not taking a salary. Even if the corporation is losing money, you will be subject to payroll taxes
C-Corporation and S-Corporation Differences: Capital Accumulation
It is important to understand that a C-corporation generally accumulates capital more efficiently. This is because corporate tax rates are generally lower than individual rates. Since dividends are not double taxed within an S-corporation, profits are retained by the company.
Of course, an S-corporation can accumulate greater capital when profits are not being distributed among shareholders. However, this would lead to significant issues during tax time. Owners would essentially need to pay income taxes on money they did not receive. Also, when acquiring S-corporation shareholders, they must be United States Citizens or residents.
There are pros and cons associated with both corporation options. Make sure you consider all angles when deciding between a C-corporation and an S-corporation. If you choose S-corporation, you can take advantage of tax-related benefits, whereas a Nevada C-corporation will offer greater flexibility in terms of stock and profit sharing.
If you require assistance for your Nevada C-Corporation, 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.