New Jersey is one of only a few states that require state-level S corporation election, because it does not recognize federal S corporation election.

What Is an S corporation?

An S corporation is a special form of corporation for small businesses that offers certain advantages. For example, an S corporation's income and losses are taxed directly on the shareholder's income tax return, meaning they avoid corporate tax.

In order to form an S corporation, companies must already be incorporated as a standard corporation. There are also several other restrictions. For example, the company must have fewer than 100 shareholders, have just one class of stock, and have a limitation on who can become a shareholder.

How to Form an S Corporation in New Jersey

Here are the steps to follow in order to form an S corporation in New Jersey:

  1. Check that your corporation's name has not already been taken. You can do this by searching the New Jersey Business Entity List or by calling the state at 609-292-9292.
  2. Register your corporation with the State of New Jersey, either online on the Department of Treasury website or via a paper registration. In this registration, you must do the following:
    • Declare that you would like to form a corporation in the state of New Jersey.
    • File a formation/authorization certificate.
    • Designate someone who lives in New Jersey and can receive the corporation's mail.
    • Pay the registration fee.
  3. Complete IRS Form 2553. This form elects S corporation status for your corporation and includes basic details about the company. As the vote to become an S corporation must be unanimous, the form must also be signed by all of your shareholders.
  4. Mail the completed and signed form to the correct address. As of 2012, this address is Department of the Treasury, Internal Revenue Service Center, Cincinnati, OH 45999.

Requirements for S corporations in New Jersey

The state of New Jersey has certain requirements for S corporations:

  • You must keep complete, up-to-date corporate records at your corporation's main place of business.
  • You must file an annual report by the last day of the month you formed your corporation. You will have to pay a filing fee of $50.
  • If your corporation will have employees, you will need a federal tax identification number, or EIN. This number is usually required by banks in order for you to open a business account.
  • Depending on the nature of your business, you will probably need a business license or permit.

The state of New Jersey does not require a state tax identification number. To find details on taxes for New Jersey corporations, see the State of New Jersey's website.

2013 New Jersey Revised Statuses

According to the 2013 New Jersey Revised Statuses, a corporation may elect to become a New Jersey S corporation as long as all of its shareholders consent to this election. The form of the election, jurisdictional requirements, and the place where the election is filed shall be decided by the Director of the Division of Taxation.

Each shareholder at the time of the vote must consent to certain jurisdictional conditions. For example:

  • The State of New Jersey has the right to collect tax on each shareholder's income from the corporation.
  • This right is not affected if a shareholder changes his or her residency, apart from in cases covered by the New Jersey Gross Income Tax Act 54A.
  • If there are shareholders who do not consent to the above conditions (not initial shareholders, who must all consent), the state of New Jersey may collect the appropriate amount of tax from the corporation directly.

Retroactive New Jersey S Corporations

Under certain conditions, corporations file their New Jersey S corporation election retroactively. In this case, the corporation must meet the following conditions:

  • Be legally authorized to operate in New Jersey.
  • Be registered with the Division of Taxation.
  • Have filed Form CBT-100S tax returns with the state of New Jersey.

Your federal S corporation election must be approved by the IRS before you can apply for retroactive New Jersey S corporation status.

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