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There are many ways to start a business in Iowa. One possible way to save money on business taxes is to create an Iowa S Corporation, sometimes shortened to S Corp. An S corporation is not a business entity, rather it is a tax designation recognized by the Internal Revenue Service. Deciding which type of business structure you should use is different than electing an S Corp designation.
When creating an Iowa business, you can choose to create one of the many state-recognized entity types. For instance, you can form an Iowa corporation or a limited liability company (LLC). After this is done, it might be advantageous to designate the corporation or LLC as an Iowa S Corporation. Then, your company can take advantage of the pass-through taxation allowed for S Corps.
You can find information on the benefits and general steps for creating a company with an S Corp status on our S Corp formation page. If you want to explore other types of business entities, review the information on our Iowa LLC formation page and our Iowa corporation formation page.
Once your business is up and running, we can help you grow and keep it state compliant with one of our many tools and services designed to help Iowa entrepreneurs, no matter where they are in the lifecycle of their business.
The name you choose for your business should be easy to remember and useful for marketing, especially online marketing. First of all, the name must be unique and not yet used in another Iowa company. The Iowa Secretary of State’s naming guidelines will help you through the process of picking a good name for your company.
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A registered agent is required for every corporation or LLC in Iowa. An Iowa registered agent will be publicly known to accept legal service and other important notices on behalf of your business during normal business hours. If you need an Iowa registered agent, we can help you find one.
Choosing directors or managers is important because they will be in charge of the corporation or LLC. This could be yourself, as the owner, or someone else. The position of director is used for a corporation, and LLCs can either choose for its members to run the business or hire a manager to do so for them.
You next have to file Iowa Articles of Incorporation (for a corporation) or the Certificate of Organization (for an LLC) with the Iowa Secretary of State’s office. These articles are the organizing and controlling documents for your Iowa corporation or LLC. The articles must be filed for Iowa to recognize your company and its legal status. We can handle this step for you with our formation services.
Note: Upon filing your formation documents, you should also look into obtaining any business licenses or permits you need for your new business.
This simple but important task can be done when you request an Employer Identification Number (EIN) from the IRS. This number is sometimes also known as a federal tax identification number, or FEIN. Your EIN identifies your company to the IRS, and is typically also needed to open a business bank account.
You have to Form 2553 with the IRS to designate your company as an Iowa S Corporation. This task can be done when you obtain your EIN from the IRS, or you can have us obtain an EIN for you.
Once this form is filed, then you can take advantage of all of the benefits of having an Iowa S Corp. Note that if you start your business as an LLC, you first need to file Form 8832 to give your business corporation status, then you can file Form 2553 for S Corporation status.
Although it has many positive aspects, declaring your company as an Iowa S Corp may not be the right decision for you. You need to understand the limitations, restrictions, and requirements of an S Corp and decide if it fits within the plans for your business. To take advantage of S Corp status, your company must:
There are also timing requirements for filing for S Corp status for already existing Iowa corporations and LLCs. The IRS Form 2553 must be filed no more than 2 months and 15 days after the beginning of the tax year the election is to take effect. The other filing option is that it can be filed at any time during the tax year preceding the tax year it is to take effect.
Knowing that an S Corp tax designation isn’t for everyone, we want to point out the pros and cons of going down this road. This will better help you decide whether to make the designation with the IRS.
The positives about having an Iowa S Corporation are the following:
It’s pretty easy to file Form 2553 with the IRS to establish your S Corp status if you decide it’s the best course to take with your Iowa company.
Certain restrictions and requirements may lead you to decide that the restrictions of an S Corp aren’t the right fit for your company:
Making the decision to use the S Corp designation is an important one and you may need the advice of a tax or legal professional to help you make the best choice.
You have to look carefully at the requirements of an S Corp before you decide to file form 2553. It’s important to file Form 2553 immediately when you first apply for an EIN because the IRS will automatically designate your business as a C Corporation if there’s no Form 2553 filing. Being designated as a C Corp tax filing status will require your company to file taxes at the corporate as well as the individual level. In other words, C Corp status opens you up to double taxation.
S Corporations are basically small business corporations that have limited corporation shareholders but aren’t subject to corporate double taxation.
Both S Corp and C Corp are tax designations created by the IRS. The S Corp designation has tax advantages, but there are limitations on the class of stocks and stockholders, along with other restrictions. C Corp does not allow for pass-through taxation, but there are no restrictions on the issuance of stock in the company.
Yes! There are benefits for an LLC to have S corporation status, above and beyond the pass-through taxation that LLCs already have. If you have an existing Iowa LLC, you should still change its tax status to an S Corp because there are still tax savings an LLC can take advantage of with an S Corp designation. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page.
Getting your business in the best position with an S Corp designation can seem overwhelming, but we are here to help. If you’re looking to start a business as an S Corporation, our S Corporation Service can give you the tools to do it quickly and accurately.
We also provide business start-up services where we can help you easily create your company and take advantage of the S Corp designation tax status during the process. Our team is just a few clicks away and is ready to help you put your new business in Iowa in the best possible position.
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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There are many benefits to an S Corp designation status. The most important is allowing for pass-through income to prevent double taxation of your company’s income.
Choosing a name for your business is one of the most important first steps in starting your business in Iowa. Choose a name that both complies with state laws (depending on the entity you’re forming) and is easy for people to identify with your business’s purpose.
It is not necessary for you to identify the tax filing status of your company to the general public. Instead, you identify your LLC as an S Corporation by filing the proper documents and tax returns at the state and federal levels.
There’s no corporate tax rate for Iowa S corporations. Instead, shareholders pay income tax on company profits when they file their individual tax return. In other words, income from your business is passed through to the owners of S Corps, who then pay personal income tax on the company’s profits. However, tax issues can become complicated, and you should always have a tax professional review your tax filings.
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