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Last Updated: 3/19/24

Starting an S corporation in Idaho could be a savvy move for business owners looking to tap into tax savings. Recognized by the IRS under Subchapter S of the Internal Revenue Code, an S corp status allows businesses to pass income directly to shareholders, avoiding the double taxation often seen with C corporations. This setup can be particularly beneficial for Idaho-based limited liability company (LLC) owners, as it opens the door to potential self-employment tax savings. By electing S corp status, LLCs can differentiate between salary and distribution earnings, with only the salary portion subject to self-employment taxes.

This article will guide you through the essentials of converting to an S corp in Idaho, highlighting the steps, benefits, and considerations to maximize your business’s tax efficiency.

What to know before creating an S Corporation in Idaho 

 To convert your LLC or corporation to an S Corp, it needs to meet certain requirements. Specifically, the entity:

  • May not have more than 100 owners
  • Must be owned by U.S. residents, trusts, or estates
  • Must have only one class of stock
  • May not be an ineligible entity such as a financial institution or insurance company

You may be wondering what’s so special about an S Corp and why you’d want to convert an LLC or a regular corporation to an Idaho S Corp.

What is the difference between an Idaho S Corp and a C Corp?

The primary difference between an S Corporation in Idaho and a C corp is how the corporation is taxed. In a typical C Corp, the corporation itself pays corporate income taxes on income earned by the business. When dividends are issued to shareholders to distribute these profits, the shareholders themselves will pay taxes as well. This can create lead to double taxation. 

How to Start an S Corporation in Idaho

If you’re ready to learn about filing as an S corporation in Idaho, we’ll walk you through it. First, we’ll show you how to form an LLC in Idaho and how to form a corporation in Idaho. 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 Idaho LLC formation guide.

  • Step 1 – Choose a Business Name
  • Step 2 – Appoint a Registered Agent in Idaho
  • Step 3 – File Articles of Incorporation/Certificate of Organization 
  • Step 4 – Create an operating agreement
  • Step 5 – Apply for an EIN
  • Step 6 – Apply for S Corp status with IRS Form 2553

S-Corp Election Steps for Corporations

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

  • Step 1 – Name Your Idaho Corporation
  • Step 2 – Appoint Directors
  • Step 3 – Choose an Idaho Registered Agent
  • Step 4 – File the Idaho Articles 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 – Apply for S Corp status with IRS Form 2553

File Form 2553 to apply for S Corp status

Complete and submit the form to apply for S corporation tax election. Once your LLC or corporation formation is approved by Idaho, you need to file Form 2553, Election by a Small Business Corporation, with the IRS to get S corp status. 

The Internal Revenue Service requires you to complete and file your Form 2553: 

  • Within 75 days of forming your LLC or C corporation, or no more than 75 days after the beginning of the tax year in which the election is to take effect

OR

  • At any time during the tax year preceding the tax year the election is to take effect.

One note for limited liability companies wanting to file as an S corp: If your LLC is past the 75-day election deadline, you’ll also need to file Form 8832, Entity Classification Election, to elect to be taxed as a corporation. Then you file both Form 8832 and Form 2553 together via USPS-certified mail. 

Every one of the members or shareholders must sign the consent statement portion of the form. The IRS website has more information on how to file Form 2553.

Pros and cons of forming an Idaho S Corporation

Deciding whether an Idaho S Corp is right for you largely depends on your needs and your business. That said, there are some distinct benefits of an S Corp.

Idaho S Corp pros:

  • Limited liability can protect personal assets from business debts and liabilities
  • Pass-through taxation can simplify the tax treatment of the business
  • The double taxation issues seen with C Corps and employment taxes with LLCs can be avoided

S Corps aren’t without their drawbacks. The main cons of an S Corp include:

  • More expensive and complicated to form than a sole proprietorship
  • Ongoing maintenance requirements
  • You could face tighter IRS scrutiny when you employ yourself through an S Corp

Get help establishing a Idaho LLC with S corp tax election

All this may seem overwhelming, but we can help. We can work with you every step of the way as you form your entity and convert it to an Idaho S Corp. Then, once your S Corp is up and running, we can help keep it that way. Whether you need a Business Plan, an EIN, or want Worry-Free Compliance, we have the services you need to keep your business going.

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Idaho S Corporation FAQs

  • You should understand that an S Corp is not a business structure. Rather, it’s a tax classification that either an LLC or a corporation can apply for with the IRS if it meets the criteria. We’ll outline those criteria and the steps you would need to take to file as an S Corp if you decide that it’s right for your business.

    If you want to form an LLC with S Corp status, our S Corp service can help you do just that. Plus, we offer other services to help you run and grow your business and stay in compliance with state and federal laws.

  • Yes! An LLC can also elect S Corporation status. Many businesses do this for tax purposes. Usually, LLCs and sole proprietorships will pay self-employment taxes on net earnings.

    However, with an S Corporation, you may be able to avoid self-employment taxes if you pay yourself a reasonable salary. You’ll most likely still need to withhold money for social security and medicare if you pay yourself as an employee. To learn more, feel free to read our information on LLC taxation issues.

  • p class=”p1″>An Idaho S Corp offers the liability protection of a corporation with the simplified tax treatment of an LLC.

  • You can pick any name that is not taken by another Idaho business and abides by the state’s business naming laws.

  • If you plan on paying yourself a reasonable salary, it may be a good idea to convert to an S Corp. But that doesn’t necessarily mean that you must identify your LLC as an S Corp. You can still use the LLC designation in your business name if you wish. Consult an experienced professional if you have any questions.

  • As a pass-through entity, you’ll typically pay taxes like other income. However, you may want to talk to a tax professional for more information about S Corp taxes.

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 S Corp in Idaho