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Last Updated: 3/19/24

Thinking about setting up an S corporation in Connecticut? It can be a smart move for business owners looking into tax savings. An S corp is a special tax category that lets a company’s income pass straight to its shareholders, avoiding the double hit of taxes that bigger corporations face. This setup can be really helpful for Connecticut’s limited liability company (LLC) owners because it might cut down on how much they pay in self-employment taxes. When you choose S corp status, LLCs can pay out part of their earnings as dividends, which aren’t hit with self-employment taxes, unlike the salary that owners pay themselves.

This guide will walk you through how to start an S corp in Connecticut, highlighting the tax benefits, the steps you need to take, and important things to think about so you can make the most of your company’s tax situation.

S Corporation requirements and limitations

Before you file Form 2553, you must ensure that your business will meet the IRS requirements for S Corp status. To elect S Corp status, your business must have:

  • Fewer than 100 shareholders
  • Owners who are individuals, estates, or trusts (not other businesses)
  • Owners who are U.S. residents (no non-resident alien owners)
  • Only one class of stock (same voting rights and interest)

Your business must continue to meet these requirements to maintain its S Corp status. If you want to elect S Corp status, you must submit Form 2553 within two months and 15 days of the start of the year (or any time during the previous year). 

What to know before creating an S Corporation in Connecticut

The IRS classifies business corporations by default rules unless you elect a different status using Form 2553. By default, corporations (known as “C Corps”) are subject to “double taxation.” C Corps pay corporate income taxes and then shareholders must pay a personal income tax on their distributions from corporate income.

What’s the difference between an S Corporation and a C Corporation?

The main difference between an S Corp and a C Corp is the taxation method (corporate vs. “pass-through” taxation), although S Corps are limited by other IRS requirements, such as limited shareholders. The owners of “pass-through entities” pay personal income tax on the business’s profits and losses on their individual income taxes, whereas traditional C Corps pay corporate business taxes.

What are the requirements to create an S Corporation? 

To create an S Corporation, you have to form a business that falls within the limitations identified above. Then, you’ll need to file Form 2553 with the IRS within the timeframes listed above. 

How to Start an S Corporation in Connecticut

Filing as a Connecticut S Corporation (sometimes shortened to S Corp) does not mean you’re forming as a separate business structure. Instead, S Corp is a federal tax election that allows you to pay income taxes on your personal tax returns rather than at the corporate level. It also helps you avoid a corporation business tax in the state of Connecticut.

If you’re ready to learn about filing as an S corporation in Connecticut, we’ll walk you through it. First, we’ll show you how to form an LLC in Connecticut and how to form a corporation in Connecticut. Then we’ll explain how to file for S corp status as either an LLC or corporation.

S-Corp Election Steps for LLCs

For detailed formation steps, see our Connecticut LLC formation guide.

  • Step 1 – Choose a Business Name
  • Step 2 – Appoint a Registered Agent in Connecticut
  • Step 3 – Choose a Director or Managers
  • Step 4 – File Certificate of Incorporation/Certificate of Organization
  • Step 5 – Get help establishing a [Texas] LLC with S corp tax election
  • Step 6 – Apply for S Corp status with IRS Form 2553

S-Corp Election Steps for Corporations

For detailed formation steps, see our Connecticut Corporation formation guide.

  • Step 1 – Name Your Connecticut Corporation
  • Step 2 – Appoint Directors
  • Step 3 – Choose a Connecticut Registered Agent
  • Step 4 – File the Connecticut Certificate of Incorporation
  • Step 5 – Create Corporate Bylaws
  • Step 6 – Draft a Shareholder Agreement
  • Step 7 – Issue Shares of Stock
  • Step 8 – Apply for Necessary Business Permits or Licenses
  • Step 9 – File for an EIN and Review Tax Requirements
  • Step 10 – Submit Your Corporation’s First Report
  • Step 11 – Get help establishing a [Texas] LLC with S corp tax election
  • Step 12 – Apply for S Corp status with IRS Form 2553

File Form 2553 to turn the business into an S Corporation

Once your business is registered, the final step of S Corporation formation is to elect S Corp status by filing Form 2553 with the Internal Revenue Service.

To file Form 2553 you should first register with the Internal Revenue Service and obtain a Federal Employer Identification Number (EIN). It can be done by applying on the IRS website directly or by using ZenBusiness’s streamlined EIN service. (Note: You’ll also need an EIN to open a business bank account.)

The state of Connecticut also requires new business entities to register with the Connecticut Department of Revenue Services by using Form REG-1, Business Taxes Registration Application.

If you formed a corporation, once the IRS accepts your S Corp election, you’re finished forming your S Corp. An LLC must first elect corporate taxation and then File Form 2553 to elect S Corp treatment.

Pros and Cons of creating an S Corporation

The choice to make the S Corp election depends on your individual circumstances. Consider these pros and cons:

Pros of S Corp election

Forming a corporation or LLC and then electing S Corp status helps you protect your assets with built-in liability protections. With S Corp status, you get pass-through taxation and tax-favorable characterization of income, regardless of your business structure. Also, S Corp status allows your business to use the cash method of accounting.

Cons of S Corp election

Electing S Corp status means some extra paperwork and expenses during formation and maintenance. You’ll need to continue to meet the tight tax qualification obligations and stock ownership restrictions to maintain your S Corp status. Because the IRS has such tight rules, the IRS may have closer scrutiny over your tax returns, and you’ll have less flexibility in allocating income and loss.

Get help establishing a Connecticut LLC with S corp tax election

If forming Connecticut S Corporation sounds like a good fit for your business, we can help! When you’re ready to start your business, let us help you form your Connecticut LLC or Connecticut corporation. Then, see how we can help your keep your business compliant and give it the tools to grow by checking out our full range of products and services.

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Connecticut S Corp FAQs

  • S Corporations are basically small business corporations that have limited corporation shareholders but aren’t subject to corporate double taxation. 

    The IRS considers an S Corp a pass-through entity. Owners report the business profits and losses on their individual returns. In addition, S Corp owners pay employment taxes on their salaries rather than the self-employment tax. Finally, the S Corp must pay the business entity tax (BET) on its Connecticut S Corporation tax return each year. S Corps pay the BET instead of the corporate business tax.

  • Yes, LLCs can make an S Corp election, and they often do. By default, the IRS taxes LLCs as a sole proprietorship or disregarded entity (one member) or general partnership (multiple members). Electing S Corp status does not change the business structure, only the tax requirements.

    The owners of an LLC may want to elect S Corp status to avoid self-employment tax liability. When you elect S Corp status, you must pay yourself a reasonable salary, on which you will pay employment taxes rather than the self-employment tax at tax time. We’ve put together a page on LLC tax information if you want to learn more.

  • Connecticut automatically recognizes your S Corp status once you file Form 2553 to elect S Corp tax treatment with the IRS. You’ll get pass-through taxation regardless of your business structure (Connecticut LLC or corporation) and can avoid self-employment tax liability by paying yourself a salary.

  • The S Corp election is a tax treatment rather than a business structure. Therefore, your company name should reflect its underlying structure. Corporations should include “Corp.,” “Co.,” “Inc,” or similar terms. LLCs should have “limited liability company” or “LLC” at the end of their name.

  • No, you should continue to identify your LLC with “LLC” or “limited liability company.” This designation alerts the public to the owner’s protected liability status. The S Corp election does not change the underlying business structure.

  • Under Connecticut law, your S Corporation should pay business taxes on the income apportioned to Connecticut. The business will report your share of the taxes based on your portion of ownership.

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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Written by Team ZenBusiness

File Your Connecticut S Corp