File an Idaho S Corp

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. 

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