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Every small business owner knows that there are two things in life that are certain: death and taxes. Unfortunately, you can’t avoid either one. But you can have your Delaware business entity elect to become an S Corporation, which might save you a bundle on taxes.

An S Corporation is not a formal business structure like a corporation or limited liability company (LLC), but rather a federal tax election defined in Subchapter S of the Internal Revenue Code. An S Corporation election allows income, losses, deductions, and credits to pass through to its shareholders to be taxed at their personal income tax rate. 

Start an S Corp in Delaware

How to Form an S Corporation in Delaware

There are several steps to forming a Delaware S Corp. Remember that a Delaware S Corp isn’t a stand-alone business entity—it’s a tax status. We’ll explain the S corp tax status later in this article. But before you can decide how you want to be taxed, you need to form a business entity. We’ll walk you through how to do that now.

1. Choose a Business Name

Naming a Delaware corporation or LLC is a straightforward process. You’ll need to follow Delaware’s company naming guidelines. This means that you’ll need to check whether any other companies have the name you want to use. You’ll also need to include an identifier like “Inc.” (for a corporation) or “LLC” (for a limited liability company) as part of your company name. Be sure to check the rules before falling in love with a name.

2. Appoint a Registered Agent in Delaware

A statutory or registered agent is not only required by Delaware law, but it makes your life easier too. Your registered agent is the person who accepts legal papers and can communicate with the state government on your behalf. We offer a Registered Agent Service in Delaware that can help your corporation or LLC stay compliant.

3. Choose Directors or Managers

Once you’ve got a registered agent in place, you’ll want to select directors or managers, depending on what type of business entity you chose. Directors help run corporations and corporate boards, and managers help LLCs. You’ll generally need to disclose their identities in your operating documents, so be sure you’ve done your due diligence. 

4. File Articles of Incorporation/Formation with the Delaware Division of Corporations

Once you’ve got your directors or managers in place, you can file your Articles of Incorporation or Formation with the Delaware Division of Corporations. You’ll be able to file your completed documents online. Once these are filed, congratulations! You’ll have taken the first steps in creating a legal business entity.

5. File Form 2553 with the IRS

The next step to electing S Corporation status is to apply for your Employer Identification Number (EIN). You can do this by either going directly to the IRS website or by using our fast and convenient EIN filing service. Once you apply for your EIN, then you can decide whether you want to make an S Corp election.

Form 2553 is the Internal Revenue Service (IRS) form where you’ll make your tax treatment election. Whether your company is a corporation or LLC, once you’ve applied for and received an EIN, you’ll be ready to take the final step to make an S Corp election, completing and filing Form 2553 with the IRS. You may need to file for C Corp status for an LLC before you can take this final step.

S Corporation Requirements and Limitations

You’re now familiar with the term S Corporation. You’ve probably also heard the term C Corporation. S Corps and C Corps aren’t different types of business entities; they’re ways the IRS defines and classifies your company for tax purposes. 

The IRS places some limitations on who can elect to become a Delaware S Corp. Before making the election, make sure your company meets S Corporation requirements:

If you meet these requirements, then you may want to file Form 2553 and elect Delaware S Corp status.

Pros and cons of creating an S Corporation

There are many pros and cons of electing Delaware S Corp status. Some pros include:

This isn’t an exhaustive list. There are many more positive aspects to creating a tax-efficient Delaware S Corp.

Some cons of electing to become an S Corporation in Delaware include:

If you have more questions about weighing the specific pros and cons of S Corp status for your business, you may want to consult an accountant.

What to Know Before Creating a Delaware S Corporation

S Corporations are businesses that have limited corporate shareholders but aren’t subject to corporate double taxation. As we’ve mentioned, a Delaware S Corporation is a way to classify your business for tax purposes. Most businesses are legally distinct from their owners and shareholders. A Delaware S Corp election helps the IRS distinguish which parties associated with your business should be taxed at what rate.

What’s the Difference Between an S Corp and a C Corp?

There are two main differences between S Corps and C Corps

Business owners need to know that Delaware corporations are treated as C Corps unless and until you make an election otherwise. 

What are the Requirements to Become an S Corp?

To create an S Corporation, you have to form a business that falls within the limitations identified above, and you have to file Form 2553 with the IRS within one of the timeframes listed above. When you file Form 2553, the IRS provides instructions on how to complete the form. You’ll need to make the election within a specific time frame depending upon your business circumstances. If you miss the deadline, it can seriously impact your tax outcomes.

Can LLCs choose an S Corporation election?

Yes. An LLC can become S Corporation. Typically, LLC owners choose S Corp status for tax reasons. Delaware S Corp status can help mitigate some issues related to self-employment and other taxes for small business owners. We provide great tax resources for small business owners and can help guide you through some of the benefits of S Corp status for self-employed business owners.

How we can help 

Our S Corporation Service can help your Delaware company get the right tax treatment for your business needs. We’re here for you to support you, from forming your entity quickly, to keeping you compliant, to helping you learn about your tax obligations. We’ll do the paperwork so you can focus on the work you love.

Whether you decide to form your company as a Delaware corporation or a Delaware limited liability company (LLC), we can help. Our fast, easy formation services can help you get your business up and running quickly in the State of Delaware. And in either case, a Delaware S Corp might be a great idea for your small business. We can help you get started on forming that entity and making that election.

And once you’re up and running, we’re here to help you with your other filing requirements and business compliance needs

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.

FAQs

  • What are the benefits of creating an S Corporation in Delaware?

    Some benefits of being a Delaware S Corp include asset protection, favorable tax treatment of income, and pass-through taxation, among others.

  • How should I choose a name for my Delaware S Corp?

    Naming requirements vary depending on whether your S Corp is a corporation or an LLC. You’ll need to check Delaware’s specific naming requirements.

  • Should I identify my LLC as an S Corporation?

    Check with a trusted lawyer or accountant to confirm the best tax treatment of your business before you confirm an S Corp election.

  • How should I calculate taxes for my S Corporation? 

    Talk with your accountant or bookkeeper about how to calculate your Delaware S Corp taxes. Rates may vary based on when you made your election and what your personal income tax rate is.

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