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North Carolina small business owners know that finding ways to cut costs and maximize profits is an ongoing challenge. And how can you save money when taxes take such a huge bite out of your bottom line? If you’re a North Carolina entrepreneur looking for strategies to save money and grow your business, creating an S Corp in North Carolina might be for you.
Whether your business entity is a corporation or a limited liability company (LLC), a tax entity like a North Carolina S Corp might help you save on your federal and state tax obligations.
When setting up your business entity, we can help you form a company fast. Whether a North Carolina LLC will best meet your business needs or a North Carolina corporation is a better fit, we can help get your entity formed and operating quickly. Once your entity is set up, making a tax election is easy.
If you decide a North Carolina S Corp is right for you, we can help with that too! Our specialty is helping your business run smoothly. We can help you complete, track, and manage your filing requirements and generally help you stay in compliance with all laws throughout the life of your business.
A North Carolina S Corp isn’t a stand-alone business entity—it’s a tax election. We’ll explain the details of this later in this article. But before you can decide how you want to be taxed, you need to form a business entity. We’ll walk you through how to do that now.
You’ll need to follow North Carolina’s company naming guidelines when setting up your business. This means you’ll need to check whether any other companies have the name you want to use. You also need to include an identifier like “Inc.” (for a corporation) or “LLC” (for a limited liability company) as part of your company name. Be sure to check the rules before falling in love with a name. You need to ensure that the name conforms to North Carolina’s naming rules and that no one else is using it.
Next, you’ll want to select a statutory or registered agent for service of process in North Carolina. You may hear either term used for a person in this role.
A statutory agent acts as your go-between when the government wants or needs to reach you for routine matters. This is required for both corporations and LLCs.
Once you’ve got a registered agent in place, you need to select directors or managers, depending on what type of business entity you chose. Directors help run corporations and corporate boards, and managers help run LLCs. Their identities are typically part of your public information. Make sure to do your due diligence on who you select as managers and directors!
Once you’ve got your directors or managers in place, you can file your Articles of Incorporation or Organization with the North Carolina Secretary of State. You’ll be able to file your completed documents online. Once these are filed, congratulations! You’ve taken the first steps in creating a legal business entity.
To make your company an S Corp, you need to obtain your business’s tax identification number. Known as an Employer Identification Number (EIN), this number identifies a business to various tax authorities. After you’ve received your EIN, you can decide what tax election you want to make for your business.
You’ll complete and file Form 2553 with the Internal Revenue Service (IRS) to finish forming an S Corp in North Carolina.
Deadlines may vary depending on how long your business has been established and your tax year. Make sure to check the Form 2553 instructions or speak with an accountant to ensure compliance. You don’t miss an important deadline!
North Carolina began comprehensive tax reforms in 2013. North Carolina, already boasting one of the lowest corporate income tax rates in the country, plans to phase out corporate tax entirely by 2030. North Carolina has also slashed personal income tax rates.
Personal income tax rates have been reduced significantly since the 2013 reforms began. The rates will be approximately half their 2013 rates by 2027 when the reforms are fully in effect.
With these broader state tax reforms in mind, make sure to know all your options when considering a North Carolina S Corp election. While S Corp status can save entrepreneurs on federal self-employment tax, make sure to discuss any state and local tax implications with your qualified accountant or lawyer.
There may be benefits for your business for maintaining C Corporation status if no corporate income tax applies to your company.
There are also limitations on who can elect to become a North Carolina S Corp. Before making the election, make sure your company meets the North Carolina S Corp requirements:
If you meet these requirements, then you may want to file Form 2553 and elect S Corporation in North Carolina status for your federal returns.
Every tax election has pros and cons. Some advantages of electing S Corp status include:
This isn’t an exhaustive list. S Corp status may have many more beneficial effects depending upon your business’s form and type.
Some cons of electing to become an S Corporation in North Carolina include:
If you have more questions about weighing the specific pros and cons of S Corp status for your business, you may want to consult an accountant.
We’ve used the terms S Corporation and C Corporation above. These aren’t types of business entities, but they are different ways to classify your business for tax purposes. An S Corp election helps the IRS distinguish which parties associated with your business should be taxed at what rate—corporate or individual.
S Corporations are tax elections. They’re simply small business corporations with few corporate shareholders that aren’t subject to double taxation (where corporate taxation applies).
Generally, there are two main differences between S Corps and C Corps.
North Carolina is moving towards a zero corporate tax system. Therefore, over the next few years, it may not matter to North Carolina businesses whether they elect S Corp status or C Corp status for state purposes. However, there may still be federal tax law benefits for S Corp election.
Both LLCs and corporations usually choose North Carolina S Corp status for tax reasons. Because North Carolina’s state tax laws are changing, speaking with an accountant or tax lawyer may provide your business with the best guidance. However, we also provide great tax resources for small business owners that can help guide you through some of the federal benefits of North Carolina S Corp status for self-employed business owners.
To create an S Corporation, your business needs to fall within the limitations identified above regarding who can be an S Corporation. You also have to file Form 2553 with the IRS within one of the timeframes applicable to your business.
Our S Corp formation service can help your North Carolina company get the right tax treatment for your business needs. We specialize in helping you meet all of your business needs throughout the life of your enterprise. Let us know how we can help you get started.
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.
There are many benefits to creating a North Carolina S Corp, including asset protection and streamlining federal, state, and local accounting and tax burdens.
Check with the North Carolina Secretary of State about rules regarding naming your business entity.
The IRS needs to know that you’ve elected to be taxed as an S Corp, but there isn’t any requirement that your name reflects your S Corp status.
Discuss your tax calculations with your bookkeeper or accountant if you’re not sure how to best calculate S Corp taxes.