One of the early steps you’ll take when launching your Arkansas business is to decide what tax structure is best for your company. If you’re looking to save on your business taxes and want an easier way to raise capital, consider filing as an S Corp.
Unlike an Arkansas corporation or limited liability company (LLC), “S corp” is not a formal business entity. Instead, it’s a tax designation with the Internal Revenue Service. Electing to file your federal taxes as an S Corp could help you save on your business taxes. This is because you avoid double taxation that is common if you’re simply an Arkansas corporation. As an S corp, shareholders pay the business’s tax liability through their personal tax returns. Contrast this with an Arkansas corporation, where you’ll pays taxes at both the business level and the shareholder level. Before you file as an S corp, you’ll need to form your corporation or Arkansas LLC with the Arkansas Secretary of State first.
Starting your own business is an exciting undertaking, but can also be overwhelming at times. We are here to support you throughout the entire process with tools and services designed to make starting and running a business easier.
Here, we’ll help you decide if an S Corp is right for you, walk you through forming an Arkansas S Corp., and show how we can help make the process easier.
The process of meeting Arkansas S Corporation requirements starts with making sure you have a properly formed Arkansas corporation or limited liability company. The next step is filing the proper forms to become an Arkansas S Corporation with the Internal Revenue Service.
Choosing your business structure is an important step for any company. There are important differences between forming as an Arkansas corporation vs. LLC that you should be aware of before making that decision.
An Arkansas corporation has a more formal management structure that requires a cadence of meetings and keeping accurate corporate records. A corporation is made up of stockholders and has the ability to raise capital by issuing stock. Conversely, limited liability companies have more flexible management structures and don’t have formal meeting requirements. LLCs are comprised of members with different roles and responsibilities.
Here are the steps to follow when registering a business, followed by how to register your business as an Arkansas S Corp.
Adhere to all state naming requirements and limitations for your corporation or limited liability company. Business names should reflect the personality of the company while ensuring the purpose is clear.
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A registered agent is someone who receives legal correspondence (such as service of process) for your company and is required for all registered Arkansas businesses. A registered agent must be available during normal business hours to receive legal documents and other official state communications.
If you’re having a hard time locating a registered agent, our Registered Agent Service can serve in this role for you. Our registered agent service handles all of the required duties of a registered agent, ensuring legal documents are passed along in a timely manner and your business stays legally compliant. Furthermore, using a professional registered agent service can help you avoid the embarrassment of being served with lawsuit notices in front of customers or others. We can help you choose your Arkansas registered agent.
Limited liability companies have members or managers and corporations have directors. These designations are important for the formation process. Your corporate board of directors or LLC members and managers will be responsible for most major decisions regarding business operations. They can be changed later on as the need arises.
Articles of Incorporation (for corporations) and Articles of Organization (for LLCs) are the filings that officially register your business with the state. Your Articles of Incorporation or Articles of Organization provide important information for the company including the company’s principal address, registered agent information, and more. This is a required step if you plan on seeking S Corp status.
Regardless of what type of business structure you choose, your last step to complete business corporation filing requirements is to file Form 2553 with the IRS and wait for approval.
This should be completed after you have obtained your federal employer identification number (EIN), because it will be needed for the form. Corporations default to C Corporation when they register for an EIN, and LLCs default to a pass-through tax entity. If your business is an LLC, you might need to file an election for C Corporation for before filing Form 2553 for S Corporation status.
Note: You will likely also need an EIN to open a business bank account.
Prior to choosing your business’s tax structure, it’s a good idea to understand the requirements and limitations of an Arkansas S Corp according to the IRS.
Are you trying to determine if the S Corporation tax designation is right for your new business? Choosing your tax structure is highly dependent on your business’s unique circumstances. Here are some factors to consider.
Pass-through taxation is the most prevalent benefit of electing to file as an S Corporation. Self-employed business owners may also opt for classifying some of their income tax as distribution and some as salary. This could save on self-employment taxes. An Arkansas S Corp has the option to use either the accrual or cash accounting method if you don’t keep an inventory.
S Corp election involves filing all of the initial and ongoing paperwork to form and maintain an official Arkansas business. Businesses that have elected S Corporation status must adhere to other obligations of the business structure including elections, notification, and ownership restrictions.
S Corporations can also only have one class of stock, and no more than 100 shareholders, although it can have both non-voting and voting shares. S Corps are subject to increased IRS scrutiny because of the options for payment classification.
An S Corporation is a great way for many businesses to save on taxes, but it’s not the best option for every business. If you’re questioning what tax structure is right for you, consider contacting a tax or finance professional. Upon the formation of your limited liability company or corporation, the default tax election is that of a C corporation. If you do nothing to change it, this will be the structure by which you are taxed.
S Corporations are qualified small businesses that have limited corporate shareholders or members but aren’t subject to corporate double taxation.
The biggest difference between C Corporations and S Corporations is taxes. C Corporations pay tax on their income as a business. Taxes are also paid by owners and employees on whatever income is received from the business. This is considered “double taxation.”
An S Corporation doesn’t pay taxes as a business. Instead, taxes are paid on the owners’ personal income tax return. Being taxed directly at the personal income tax level is called “pass-through taxation,” and is one of the primary benefits of an S Corp. An S Corporation may still have to pay income tax on certain income depending on the type of business.
Both limited liability companies and corporations can make an S Corp election. This should occur not more than 2 months and 15 days after the beginning of the tax year the election is meant to take effect — or at any time during the tax year preceding the tax year it is to take effect.
Creating your Arkansas S Corporation doesn’t have to be complicated. In fact, we can even start your S Corp for you as part of our LLC formation service. There’s a lot that goes into starting and maintaining a business. You don’t have to know it all. We’re here to help with all your Arkansas business needs.
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While the rule of thumb is that Arkansas corporations pay the state’s corporate income tax, business entities that elect to be taxed as S corporations are exempt from it. However, like all other entities doing business in the state, Arkansas S corporations have to file an annual franchise tax report and their business profits are subject to the state’s franchise tax.
Pass-through taxation is the most prevalent benefit of electing to file as an S Corporation. You may also benefit from using a cash accounting method and could potentially save on self-employment taxes.
Choose a name for your business according to Arkansas LLC or corporation business naming laws. Ensure that no other Arkansas company is using the same or a similar name.
The IRS needs to know that you are an S Corporation, but this doesn’t have to be stated in the LLC’s name or marketing material.
Arkansas S Corp taxes are paid on the owners’ personal income taxes. Other taxes may apply depending on the type of business. If you have any confusion surrounding tax issues, seek the advice of a certified tax professional.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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