If you want to set up a business as an S corp, Nevada may be the place to do it. The Silver State has no state corporate or personal income tax, and setting up an S corporation could have federal tax advantages, as well. But what is a Nevada S corp, how do you set one up, and how could it benefit you?
For a limited liability company (LLC), filing as an S corporation may provide savings on self-employment taxes in some cases. For C corporations (the default form of corporation), it can be a way to avoid double taxation. For more in-depth info on S corporations, see our “What Is an S Corporation?” page.
You should understand that an S corporation is not a business structure. Rather, it’s a tax classification that either an LLC or a corporation can apply for with the Internal Revenue Service (IRS) if it meets their criteria. We’ll outline those criteria and the steps you would need to take to file as an S corporation if you decide that it’s right for your business.
There are a few S corp filing requirements and limitations you should be aware of before you begin this process. Specifically, the internal revenue code states that to qualify for S corporation status, an entity must:
if your business entity meets these requirements, you can apply for an S corporation election.
To file as an S corporation in Nevada, you’ll need to create either an LLC or a corporation if you haven’t already done so. Then, you’ll file an election form with the Internal Revenue Service.
If you’re ready to learn about filing as an S corp in Nevada, we’ll walk you through it. First, we’ll show you how to form an LLC in Nevada. If you’d rather form a State of Nevada corp, follow the instructions on our Nevada corporation page. Then, in Step 6, we’ll explain how to file for S corp status as either a Nevada corporation or LLC.
The first step to forming a Nevada LLC is selecting a name. Try to think of a name that’s memorable and conveys the products or services you’re selling. But you’ll also need to keep Nevada’s naming regulations in mind.
Your Nevada LLC needs to have a name that’s clearly distinguishable from all other businesses in the state. To see if your desired name is available, follow the instructions on our Nevada Business Entity Search Page and do a search for your desired LLC name.
Keep in mind the following LLC naming requirements for Nevada:
Once you confirm that your desired name is available, we can help you reserve your business name. This prevents others from taking it while you finish the business formation process.
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Now it’s time to select a Nevada registered agent. A registered agent is an individual or business that is chosen by the LLC members to accept legal documents (such as notices of a lawsuit) on behalf of the company.
The registered agent must be available at the registered office during normal business hours so they can receive notices in person. The registered office doesn’t have to be where your business is actually located, but it does have to be a physical street address in Nevada. You can’t use a P.O. box because notices like subpoenas must be delivered in person.
Some LLC members opt to use a registered agent service instead of being their own registered agent. This frees them from the responsibility of constantly having to be available to receive legal notices in person and the potential embarrassment of being served with notice of a lawsuit in front of clients. Our registered agent service can provide you with a registered agent.
File Articles of Organization with the Nevada Secretary of State. This is the government document that makes your business legal and recognized in the eyes of the state. You can file online or by postal mail.
Within this filing should be your LLC’s chosen name, the name and address of the registered agent, the date you plan to start (if not immediately), and the state filing fee. Also, Nevada mandates that you state whether your LLC will be managed by its members or a hired or appointed manager.
Remember that we can handle filing Articles of Organization for you with our business formation services.
Create an LLC operating agreement. Even though having an operating agreement in Nevada isn’t required by law, it’s an extremely important document for an LLC.
An LLC operating agreement usually covers the rules your company will follow, lists the LLC members, each member’s ownership percentage, how business profits will be divided, and much more.
The operating agreement also discusses how decisions for the business will be made, including management and member voting structure. It’s essentially the agreed-upon rules for your LLC for you and the other members. Once signed by all members, it’s legally binding.
Get an Employer ID Number (EIN) from the IRS. Many LLCs, including those with employees or more than one owner, are legally required to obtain an EIN, also known as a Federal Tax Identification Number. Most banks require an LLC to have an EIN to open a business bank account. This nine-digit number is used for tax purposes and other financial paperwork.
We can obtain this number for you with our EIN service.
Submit Form 2553 to apply for S corp status. Once your Nevada corporation or LLC formation is approved by the state, you need to file Form 2553, Election by a Small Business Corporation, to get S corp status.
The Internal Revenue Service requires that you complete and file your Form 2553:
One caveat for LLCs wishing 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 would file both Form 8832 and Form 2553 together via USPS-certified mail.
Visit the Internal Revenue Service website for more information on when and how to file Form 2553.
While S corp classification does come with a number of tax advantages for some businesses, making this election might not be right for all business types. So, you’ll need to carefully weigh the pros and cons before deciding how you want to proceed. Consult a tax professional about whether the S corp election would be best for your business.
The advantages of filing as an S corp for an LLC differ from those for C corporations. Let’s look at the advantages for LLCs first.
A traditional LLC already has pass-through taxation, so the benefits of S corp election for an LLC have to do with self-employment taxes. This takes some explanation, but for certain LLCs, it could save a lot in taxes.
The members of a standard LLC are considered self-employed. They’re compensated by receiving their share of profits from the LLC, but they can’t be employed by the LLC. Being self-employed means paying self-employment tax (Social Security and Medicare, which adds up to about 15.3%) on all profits they receive from the LLC. This is more than the taxes they’d pay when working for someone else because their employer would pay part of them.
But when the members elect S corp status, they can be compensated in two ways, by receiving their share of the profits and by being paid as an employee. Once they do that, they only pay Social Security and Medicare taxes on their salary and not the profits they receive. Depending on factors such as how profitable your company is, the savings could add up to a lot. (Of course, the members will still pay income and all other applicable taxes on their share of the profits.) Money paid out as salary is a tax-deductible expense for the business.
One caveat to this is that the IRS expects you to pay yourself a “reasonable salary” as an employee of the LLC. Otherwise, you could pay yourself an annual salary of $1 and avoid contributing anything to Social Security and Medicare.
So, what is “reasonable compensation”? The instructions on Form 1120-S read, “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.” Basically, the IRS considers “reasonable” to be something similar to what others in your field are earning.
If the IRS determines that your salary isn’t reasonable, it has the authority to reclassify your non-wage distributions (which are not subject to employment taxes) to wages (which are subject to employment taxes). Several court cases have supported the IRS’s right to do this.
Having an LLC with S corp status can have some drawbacks over a traditional LLC:
As we listed above, S corporations must adhere to more regulations than a standard LLC or C corporation. An S corp can have no more than 100 members, and none of them can be partnerships, corporations, or non-resident aliens. A traditional LLC doesn’t have these limitations.
Because of the above restrictions and the requirements about paying yourself a “reasonable salary,” the IRS tends to monitor LLCs filing as S corporations more closely. That could mean a greater chance of being audited, even if you follow the law to the letter. In fact, S corp owners may want to observe many of the same formalities that C corporations do (such as keeping extensive thorough corporate records), even if they’re not legally required to.
Having an LLC that files as an S corporation generally means more paperwork. If you don’t already have to do payroll for your business, being an owner-employee means that you’ll have to do so. Your taxes will be more complex, as well.
With these added complications, you’re likely to have higher administrative costs. You may find that you need an accountant, bookkeeper, and/or a payroll service or software.
If you have a C corporation (the default form of corporation), filing as an S corp does have its advantages:
One big disadvantage for traditional corporations is “double taxation.” When the corporation makes money, the IRS taxes those profits on the corporate level. But when those profits are distributed to the individual owners (shareholders) as dividends, they’re taxed a second time on the shareholders’ personal tax returns.
But when a C corporation qualifies to be an S corp, those profits are only taxed at the individual level. The business itself isn’t taxed on them. This is called “pass-through taxation,” and it’s how sole proprietorships and general partnerships are taxed. LLCs are also taxed this way unless they choose to be taxed as a corporation.
We need to add here that, since the 2017 Tax Cuts and Jobs Act, the corporate tax rate has been lowered to a flat 21%. So, the disadvantages of C corporation taxation aren’t as severe now as they were.
Just as business profits pass through to the owners of an S corp, so do the losses. Unlike the shareholders of a C corporation, S corp owners can write off the company’s losses on their personal income statements.
This can help offset their income from other sources and can be helpful if the corporation loses money in the first couple of years. Still, make sure you’re aware of the IRS’s shareholder loss limitations.
Under the Tax Cuts and Jobs Act, some S corp owners may be able to deduct up to 20% of their qualified business income. This deduction isn’t available to C corporation shareholders.
Qualified business income (QBI) is basically your share of the company’s profits, or, as the IRS puts it, “QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.” The IRS website has a detailed explanation as to what is and is not included in QBI. There’s an income threshold that, if exceeded, may reduce your QBI (see the IRS website for details).
S corp status also has its downsides:
As we said, an S corp can’t have more than 100 shareholders, while a C corporation has no such restriction. That limitation could be an issue later if the corporation expands and goes public.
All S corp shareholders must be U.S. citizens, or certain trusts or estates. That could limit your ability to expand internationally. You also can’t have partnerships or corporations as shareholders. C corporations don’t have these limitations.
One way corporations attract investors is to offer preferred stock. That’s fine for C corporations, but the IRS doesn’t allow it for S corporations.
Because of the extra restrictions S corporations have, the IRS watches them more closely to see if they’re in compliance. In other words, your corporation is more likely to get audited.
We can’t stress enough how important it is to have tax guidance about your specific situation from a qualified tax professional. An accountant with S corp experience should be able to make sure you stay in compliance with the IRS, but they may also be able to help you find additional tax savings.
In an S corp, the business itself doesn’t usually pay federal income taxes. But what about state income taxes?
Most other states treat S corporations the same way the federal government does for income taxes. That is, if the company doesn’t pay federal income taxes on its profits, it doesn’t pay state income taxes, either.
But Nevada doesn’t have a corporate income tax or a personal income tax at the state level. Initially, that may seem to let you and your business off the hook for state income taxes, but not necessarily. Nevada has a Modified Business Tax and a Commerce Tax, either of which could apply to your S corporation depending on certain factors.
Regardless of business entity type, Nevada employers (specifically, those subject to Nevada Unemployment Compensation Law) must pay the Modified Business Tax on their total gross wages, minus any employee health care benefits paid by the employer. “Total gross wages” are the total amount of all gross wages and reported tips paid for a calendar quarter, as reported to the Employment Security Division on form NUCS 4072.
The Modified Business Tax rate for most general business employers is 1.378% on wages after deduction of health benefits paid by the employer and certain wages paid to qualified veterans. However, the first $50,000 of gross wages is not taxable. (These numbers are accurate as of 2022.) All employers will need to file a tax return, even if the taxable wages are less than $50,000 and the tax due is $0. Financial institutions have a separate Modified Business Tax rate.
Non-profit organizations, Indian tribes, political subdivisions, and employers with household employees only are excluded from the Modified Business Tax.
The Commerce Tax is a tax on the privilege of doing business in Nevada. It applies to most business types, including LLCs and corporations, with or without S corporation status. However, unless your Nevada gross revenue in a taxable year exceeds $4,000,000, you don’t have to pay it or file a Nevada Commerce Tax return.
The tax rate for those business entities that must pay the Commerce Tax varies by industry, ranging from 0.051% to 0.331% (as of 2022).
Though not a tax per se, most business entities in Nevada are required to get a State Business License. This includes LLCs and corporations, regardless of S corporation status. The state license fee is $500 for corporations and $200 for all other business types. The license must be renewed annually for the same fee.
Forming a business can be complicated, but we’re here to make it as easy for you as possible.
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. Click the button below to get started.
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For a corporation, one of the biggest advantages is being able to avoid double taxation. Typically, a C corporation’s profits are taxed at both the business and individual shareholder level, while an S corp’s profits are taxed only on the individual level.
For an LLC, when the members elect S corp status, they can be compensated in two ways, by receiving their share of the profits and by being paid as an employee. Once they do that, they only pay employment taxes (Medicare and Social Security) on their salary and not the profits they receive. For some LLCs (especially more profitable ones), this can add up to real tax savings.
The naming process for your Nevada corporation or LLC isn’t affected by your S corp status. Whether you file to be taxed as an S corp or not, your business remains an LLC or a corporation and follows the same Nevada business naming rules.
Before formally registering a business name, you should first search the Nevada business name records to make sure that you don’t select one that’s already in use by another business. That aside, however, you can typically name your Nevada S corporation nearly anything you want as long as you comply with any applicable state naming regulations.
S corp status may not benefit all businesses. If you’re not sure whether to identify your LLC as an S corp or keep the default status, be sure to consult with an experienced business law attorney or accountant in your state.
Calculating taxes can be a chore, but you can check out our S corp tax guide to learn more about navigating taxes for your Nevada S corporation. A certified tax professional can give you more definitive information for your circumstances.
Sorry, but our S corp service is only for applying for S corp status when you form your LLC with us.
According to the IRS website, they will notify you as to whether or not your S corp election is accepted within 60 days of filing Form 2553.
If you’re a new LLC, you’re required to apply for S corp status within 75 days of the formation of your LLC or no more than 75 days after the beginning of the tax year in which the election is to take effect. For an existing LLC, you would file at any time during the tax year preceding the tax year it is to take effect.
An LLC is a legal business entity, but an S corp is only a tax filing status. You can read more on our LLC vs. S Corp page.
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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