Top S Corporation Election Services
An S corporation (S corp) is a type of corporation that elects to pass corporate income, deductions, and credits through to its shareholders for federal tax purposes. This means that the company's profits and losses are passed directly to its shareholders and are reported on individual tax returns rather than at the corporate level.
Essentially, an S corp is a corporation that meets specific Internal Revenue Service (IRS) criteria and has elected to be treated as a pass-through entity for tax purposes.
Best S Corporation Services 2024:
The following services each have something to offer, including filing the additional documents needed to register as an S corp. Some are designed for the budget-conscious, while others are premium packages targeted at entrepreneurs ready to spend more and avoid inconveniences.
Of course, no single service is perfect for everyone, and by the end of our review, you will be able to identify which platform is right for your company.
Best S Corp Service: ZenBusiness
ZenBusiness ($49 + state fee) is our pick for the overall best S corp formation service due to its excellent reputation, competitive pricing, and comprehensive set of services.
ZenBusiness was founded in 2015 to help small business owners launch their ventures with minimal cost and hassle. We like this company for S corp formation services for several reasons:
- Customer support is readily available and good at what they do
- Plenty of positive reviews from other business owners
- Streamlined, guided ordering process
- Online user dashboard is one of the best you will find
- S corporation formation (or other types of formation, such as LLC or corporation)
- Unlimited name availability searches
- Free accounting consultation
- Free automatic expense tracking
- Free tax deduction tagging
- Worry-free compliance free first year (Auto-renewal price: $199/yr): Includes annual filing report alerts and submittal, two free filing changes per year, and insurance on document filings to maintain good standing if documents are not submitted on time.
ZenBusiness has a track record of success, and its user dashboard is unbeatable. Form an S corporation with ZenBusiness ($49 + state fees).
Northwest’s exceptional value contributes to its rank in our business formation review. It’s not a complex or feature-rich service compared to some of its competitors. However, it gets the basics right, including keeping the price affordable and giving you a free year of registered agent service. That’s a perk that can cost $200–$300 a year with other companies.
- Full year of registered agent service for free
- Great customer support
- Free mail forwarding
- Experienced, but on the smaller side for a personal touch
While Northwest Registered Agent is great when you need a good value, it’s not perfect. One area where it’s less competitive is in the ordering and setup process. It can feel clunky to use and is not nearly as streamlined as some other services.
Northwest has long been an industry juggernaut, and their customer service and prices cannot be beat. Form your S corporation with Northwest (Starts at $39 + state fee).
Collective is a business formation service targeting premium users. It doesn’t try to draw you in with ultra-low prices. Instead, it offers a wide variety of included services that many other services lack. The premium price may be worth it for entrepreneurs who value convenience.
- S corp formation
- Free consultation with a tax advisor
- EIN and operating agreement
- Bookkeeping and payroll training
- Year-round bookkeeping, payroll, accounting, and tax support
- Member relationship manager
As you can see, these extra services are substantial. And there are many more than we have listed above. Helping you form your S corporation is just the tip of the iceberg when you choose Collective.
Collective offers customers a hassle-free experience. Their higher price is offset by their superior customer service and additional features. Start your S corp with Collective ($299/month or $254/month if you pay for an entire year upfront)
LegalZoom is a well-known brand in the business formation sector. The company has been around for a long time, much longer than some of its competitors. Plenty of entrepreneurs have used the company to form S corporations, and plenty more have taken advantage of its business-related legal services. They have three different packages that are priced at $149, $329, and $349 (plus state fees).
- All S corp formation documents filed with the state
- LegalZoom “peace of mind” review.
- Small business consultation
- Lifetime customer support
- Business website
Bizee has earned its reputation in the business formation industry since its inception in 2004. Catering to thousands of entrepreneurs annually, Bizee has managed to strike a balance between affordability and comprehensive service. Their free Silver package, which only requires you to pay state fees, is a testament to this commitment.
- Zero dollar base rate for S corporation formation (just pay state fees)
- Lifetime company alerts
- Online order tracking and a user-friendly dashboard
- Free tax consultation and business bank account in middle and top-tier plans
- One full year of free registered agent service
Pros & Cons of S Corporations
- Pass-Through Taxation: Unlike traditional C corporations, which pay corporate income tax, S corps allow business profits and losses to flow directly to the owners' personal tax returns, avoiding double taxation.
- Limited Liability Protection: Shareholders aren't typically personally responsible for company debts or legal issues.
- Separate Legal Entity: S corps can independently enter contracts, own property, and engage in legal proceedings.
- Potential Tax Savings: Some income from an S corp might not be subject to self-employment taxes, potentially reducing tax liability.
- Eligibility Restrictions: Limited to 100 shareholders who must be U.S. citizens or resident aliens. Some entities, like many trusts, can't be shareholders.
- Salary Requirement for Owners: The IRS mandates "reasonable compensation" for shareholder-employees, which can be a contentious point.
- Stock Basis Complexity: The basis of S corp stocks and debt can be complex and demands meticulous tracking.
- Income Allocation Rigidity: Income and losses are distributed based on share ownership, lacking the flexibility of partnerships or LLCs.
- Termination Risk: Certain missteps can inadvertently terminate the S corp status, leading to tax complications.
How to Choose an S Corp Service
When seeking an S corp formation service, consider the following factors to ensure you choose a reliable and efficient provider:
Reputation and Reviews
Look for services with strong customer feedback and positive reviews, indicating consistent quality and customer satisfaction.
Compare pricing among providers. Some might offer flat-rate packages, while others might have à la carte pricing or recurring fees.
Ensure the service covers vital aspects of S corp formation, such as filing Articles of Incorporation, obtaining an EIN, and creating bylaws or operating agreements.
Opt for services that offer robust customer support, whether through phone, email, or live chat. It's crucial, especially if you have questions or face complications during the formation process.
Ongoing Compliance Assistance
Some services provide reminders or help with ongoing state requirements, such as annual reports, to maintain S corp status.
Some providers offer value-added services, like registered agent services, business licensing, or banking and tax consultation.
If you're in a hurry, check the provider's processing speed. Some might offer expedited services for an additional fee.
Ease of Use
The platform or service should be user-friendly, making the formation process straightforward, even for those unfamiliar with corporate structures.
Which S Corporation Filing Service is Best?
Choosing the perfect S corp filing service is a personal choice that only you can make. Every business has its own needs. Some need the least expensive bargain they can find. Others want all the bells and whistles. That’s why we encourage you to read each individual review and decide which makes the most sense for your requirements.
For most businesses, though, we think that ZenBusiness is the right choice. It has the experience and offers the right combination of services for the right price. It’s also very affordable. If you are on the fence, we encourage you to give ZenBusiness a try!
What is an S corp?
An S corporation (S corp) is a type of corporation that passes income, losses, deductions, and credits through to shareholders to be reported on their personal income tax returns. This allows S corporation shareholders to avoid double taxation on corporate income.
The main tax advantages of an S corporation are that income is only taxed once at the shareholder level rather than both the corporate and shareholder levels, shareholders can deduct any losses of the S corporation on their personal returns to offset other income, and S corporation income is not subject to self-employment tax like a sole proprietorship or partnership.
Is an S corp a business structure?
An S corp is a tax classification rather than a distinct business structure. At its core, an S corporation is still a corporation in terms of its legal structure. However, it has chosen to be taxed under Subchapter S of the Internal Revenue Code, which allows it to pass income, deductions, and credits through to its shareholders, thereby avoiding double taxation at the corporate level.
So, while the underlying entity is a corporation (a business structure), the "S corp" election specifically refers to its chosen method of federal tax treatment.
What are the steps to elect S corp status?
To elect S corp status:
- Incorporate: File Articles of Incorporation with the relevant state agency.
- Obtain an EIN: Secure an Employer Identification Number from the IRS if not already held.
- Confirm Eligibility: Ensure the corporation meets S corp criteria, such as being a domestic entity and excluding ineligible types like DISCs.
- File Form 2553: Submit the "Election by a Small Business Corporation" form. All shareholders must sign the form to show their agreement with the S corp election.
- Timing: File within two months and 15 days of the tax year start for current-year election, or it defaults to the next year.
- Send Form to IRS: Forward Form 2553 to the appropriate IRS service center.
- Await IRS Confirmation: Upon approval, the IRS will send a confirmation letter.
- State Compliance: Check if your state requires a separate S corp form or has unique guidelines.
- Maintain Status: Continuously meet S corp requirements and file annual returns using Form 1120S.
What are the 2 main disadvantages of S corporations?
One of the main drawbacks of an S corporation is its stringent eligibility criteria, restricting it to 100 shareholders who must be US citizens or resident aliens and often excluding certain entities like specific trusts. Additionally, S corps are limited to only one class of stock, constraining financial flexibility and the ability to offer varied voting or dividend rights to investors.
Is it better to be an S corp or LLC?
Deciding between an S corp and a limited liability company (LLC) hinges on several factors. While both offer limited liability protection, S corps can provide tax benefits by allowing profits and losses to flow directly to shareholders' personal tax returns, but they come with ownership restrictions and a single stock class.
On the other hand, limited liability companies offer greater flexibility in management and profit distribution, with the option to choose their tax classification and fewer formalities.
The best choice depends on individual tax considerations, growth ambitions, operational preferences, and ownership structure. Consulting with tax and legal professionals is essential to make an informed decision.
What payroll taxes are deductible for S corp?
These include the employer's portion of Social Security and Medicare taxes (FICA), Federal Unemployment Tax (FUTA), State Unemployment Taxes (SUTA), and premiums for worker's compensation insurance. Additionally, the actual salaries and wages paid to employees, including shareholder-employees, are deductible.
However, shareholder-employees must receive "reasonable compensation" before taking non-wage distributions, which aren't subject to payroll taxes. It's crucial to note that the shareholder-employees share of FICA isn't deductible by the corporation.
What are some eligibility requirements to elect S corp status?
To be eligible for S corp status, a company must be a US-based domestic corporation, excluding certain types like domestic international sales corporations (DISCs). Eligibility also requires having fewer than 100 shareholders, who can only be individuals, specific trusts, or estates, with partnerships, other corporations, and non-resident aliens being ineligible.
Moreover, the corporation can have only one class of stock, despite differences in voting rights being acceptable.