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Last Updated: 3/19/24

Thinking about setting up an S corporation in Nebraska? This tax status might just be what your business needs to tap into some tax savings. For owners of a limited liability company (LLC) in Nebraska, becoming an S corp could make a big difference when it comes to how much you pay in self-employment taxes. Typically, LLC profits are subject to these taxes, but by choosing an S corp status, there’s a way around this. It allows business owners to take a portion of the business’s income as a salary, which is the only part that will face self-employment taxes. Any additional profits can be distributed as dividends, which are not subject to the same taxes, potentially keeping more money in your pocket.

This guide is here to help walk you through starting an S corp in Nebraska, focusing on how this tax decision can help ensure your business enjoys the benefits of a more favorable tax treatment while complying with all the necessary regulations.

Requirements and Limitations for S Corporations

Before you can form an S Corporation, your business must meet certain requirements. It must:

  • Be a domestic Nebraska corporation
  • Have only allowable corporation shareholders (individuals, certain trusts, and estates but not partnerships, corporations, or non-resident alien shareholders)
  • Have no more than 100 shareholders
  • Have only one class of stock
  • Not be an ineligible corporation (i.e., certain financial institutions, insurance companies, and domestic, international sales corporations).

Your business must maintain these requirements to continue its S Corp status. You should file Form 2553 within two months and 15 days of the start of the tax year or any time in the year before you want to be taxed as an S Corp. 

What to know before creating an S Corporation in Nebraska

The first thing you should know is that the S Corp isn’t a business structure but rather a tax treatment. The second thing is that the IRS assigns a default tax treatment to each type of business entity, unless and until you file a non-default election such as S Corp status.

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

The default tax treatment for a Nebraska corporation is that of a C Corp, which involves double taxation. Double taxation means the corporation pays the corporate income tax and withholds employment taxes from its employees’ wages. If your corporation elects S Corp treatment instead, the business retains the same structure (shareholders, Board of Directors), but it no longer pays income taxes at the corporate level. Instead, the shareholders pay income and employment taxes on their individual returns based on their share of the corporation’s profits or losses. 

What are the requirements to create an S Corporation?

 To create an S Corporation, you first need to register a business falling within the limitations identified above. Then, you have to file Form 2553 with the IRS within the appropriate timeframes. 

How to Create an S Corporation in Nebraska

When you form a business in Nebraska, the state’s Department of Revenue charges income taxes to the business according to the definitions in the federal Internal Revenue Code. Therefore, you must first register your business in Nebraska as either an LLC or a corporation and then elect federal S Corp tax treatment to form a Nebraska S Corp. Once the IRS accepts your S Corp status, Nebraska will tax your business as an S Corp. 

Here are the steps you need to take to form your Nebraska S Corporation:

S-Corp Election Steps for LLCs

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

  • Step 1 – Choose a name 
  • Step 2 – Choose a registered agent
  • Step 3 – Choose a director or managers 
  • Step 4 – File Articles of Incorporation or Certificate Organization with the Nebraska Secretary of State
  • Step 5 – Publish Articles of Incorporation/Organization
  • Step 6 – Apply for S Corp status with IRS Form 2553

S-Corp Election Steps for Corporations

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

  • Step 1 – Name Your Nebraska Corporation
  • Step 2 – Appoint Directors
  • Step 3 – Choose a Nebraska Registered Agent
  • Step 4 – File the Nebraska 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 turn your business into an S Corporation

Whether you choose the structure of an LLC or a Nebraska corporation, the final step to forming an S Corp is to file Form 2553 with the Internal Revenue Service (IRS). Nebraska has no further S Corporation filing requirements. It will recognize your S Corp election when the IRS accepts your election. Before your LLC can complete Form 2553, you must first elect to be taxed as a corporation. Then, you can complete your S Corp election.

Note: In order to file Form 2553, you’ll first need an employer identification number (EIN). You’ll also need an EIN to do certain things like open a business bank account. Luckily, our EIN service can handle this part for you.

Weighing the pros and cons of creating an S Corporation

When choosing a business structure or tax treatment, you have many options. It’s important to think about how you want your income to be taxed. Also, consider how flexible you want your business ownership to be.

Pros of creating a Nebraska S Corp

Compared to unincorporated entities like the sole proprietorship or the general partnership, the S Corp provides more protection for your personal assets. Another pro of the S Corp is the pass-through taxation and tax-favorable characterization of business income. Finally, the S Corp allows for the cash method of accounting.

Cons of creating a Nebraska S Corp

The biggest con of the S Corp is the formation and maintenance expenses. Compared to the basic corporation or LLC, you have more paperwork to do. You’ll also face tighter tax qualification obligations and stock ownership restrictions. In addition, the IRS will likely subject your business to closer IRS scrutiny. Finally, the S Corp offers less flexibility in allocating income and losses.

Get help establishing a Nebraska LLC with S corp tax election

If you’ve decided that the S Corp is right for your business, we can help. See if our S Corp formation service is right for you. When you form your business with us, our business experts will be here to support you from formation to compliance. We’ll ensure you get all the paperwork and can even remind you of important deadlines.

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Nebraska S Corp FAQs

  • The S Corporation is a business that has elected S Corp taxation. S Corps use “pass-through” taxation. Rather than paying corporate income taxes, the business owners will only pay federal income tax on their individual returns. Unlike traditional “pass-through” entities like LLCs, partnerships, or sole proprietorships, the owners of S Corps pay employment taxes on their salary instead of the self-employment tax.

  • Yes, LLCs can make an S Corp election. Making the S Corp election doesn’t change your business structure. Usually, the members of an LLC will make the S Corp election for tax purposes. An LLC isn’t ordinarily subject to corporate income tax. As a “pass-through entity,” the members of the LLC pay income taxes at the individual rate on business profits and losses.

    However, they must also pay self-employment taxes on their income from the business. Instead, when an LLC’s members elect S Corp status, they must pay themselves a reasonable salary, and the S Corp (LLC) will collect employment taxes on that salary. If you have questions about taxes for LLCs, our business experts have written a page just for you.

  • Creating an S Corporation means your business will get pass-through tax treatment. This means it won’t pay income taxes at the corporate level, but you still get to choose your business structure (LLC or corporation).rnrn

  • Because the S Corp election doesn’t change your business structure, you should name your business according to its underlying structure. An LLC should include the words limited liability company or limited company or the abbreviation L.L.C., LLC, L.C., or LC. A corporation’s name should include the word corporation, incorporated, company, or limited, or the abbreviation Corp., Inc., Co., or Ltd.rnrn

  • No, continue identifying your LLC with the words “limited liability company” to alert consumers to the type of liability its owners can be held responsible for. S Corp status is only a form of tax treatment and doesn’t need to be reflected in your name.rnrn

  • The S Corporation will complete a Schedule K-1 that informs shareholders or members of their share of its profits and losses. You will then pay income taxes at the individual rate on that share.rnrn

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

Form Your Nebraska S Corporation