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Last Updated: 3/19/24

Considering transforming your Utah business into an S corporation? This move could be a smart way to navigate the tax landscape. Unlike traditional tax setups where business income might be taxed twice, an S corp status lets your business’s income pass directly to you and any other owners, minimizing the bite of double taxation.

For Utah’s limited liability company (LLC) owners, this shift can lead to significant tax savings, particularly regarding self-employment taxes. Here’s the kicker: Normally, LLC owners might pay self-employment taxes on all their income. But, by adopting S corp status and paying themselves a reasonable salary, only this salary is subject to self-employment taxes. Any additional profits taken as distributions (think of them as dividends) aren’t hit with these taxes.

This guide aims to simplify the process of starting an S corp in Utah, focusing on the tax advantages, essential steps to take, and what you need to remember to optimize your tax situation effectively.

S Corporation requirements and limitations

Not every business can become an S Corporation. If you want your business to be an S Corp, it must normally do the following: 

  • Be a domestic entity
  • Not exceed 100 shareholders 
  • Have only one class of stock
  • Have only permissible shareholders, such as estates, individuals, and certain trusts, but not partnerships, non-resident immigrants, or corporations
  • Not be an ineligible corporation, including insurance companies, domestic international sales corporations, or certain financial institutions

Depending on the kind of business you want to run, this list of requirements might be too prohibitive, or it might be insignificant. It’s best to speak to tax or financial professionals (such as payroll and accounting services) about your needs and options. 

What to know before creating an S Corporation in Utah

What is an S Corporation? 

Although an S Corporation sounds like a distinct business type, it isn’t. An S Corp is a tax designation you choose for a business you’ve already formed. Giving your business S Corp status can give your business tax perks it might not normally have. 

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

Two of the biggest differences many people recognize between S Corporations and C Corporations are the limitations that S Corporations have and the heftier tax liabilities C Corps often have.

Unlike S Corporations, C Corporations can normally issue more stocks to more kinds of shareholders. Owners of C Corps also have more options for the kinds of businesses they want to run. These differences can be significant, but one of the most significant differences for many is the way each kind of business pays taxes.

C Corporations typically have the burden of double taxation. This means that a C Corporation pays income taxes at the corporate level, and then corporation shareholders pay personal income tax on their distributions from the corporate income.

S Corporations normally have the benefit of pass-through taxation. With pass-through taxation, the S Corp itself doesn’t pay taxes, just the shareholders pay personal income taxes and self employment tax on their distributions from the business’s income. 

What are the requirements to create an S Corporation?

Before a business can become an S Corporation, it has to operate within the limitations we listed above and file the proper paperwork. The main part of your Utah S Corporation filing requirements is submitting Form 2553 to the Internal Revenue Service. To properly submit the form, your business needs to have an Employer Identification Number (EIN).

We can help you get your EIN in no time with our Employer ID Number Service

How to create an S Corporation in Utah

As we said above, S Corporations often start as LLCs or business corporations, and then their owners elect to run S Corps by filing additional paperwork. These are basic steps for starting a business that can become a Utah S Corporation (such as naming your business, appointing a registered agent, and filing formation documents with the state):

S-Corp Election Steps for LLCs

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

  • Step 1 – Choose a name
  • Step 2 – Appoint a Registered Agent
  • Step 3 – Select a Board of Directors (for a corporation) or Members (for an LLC)
  • Step 4 – Submit Articles of Incorporation or a Certificate of Organization to the Utah Division of Commerce
  • Step 5 – Apply for S Corp status with IRS Form 2553

S-Corp Election Steps for Corporations

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

  • Step 1 – Name your Utah corporation
  • Step 2 – Appoint directors
  • Step 3 – Choose a Utah registered agent
  • Step 4 – File the Utah 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 Utah business into an S Corporation

To give your business S Corp tax status, you complete Form 2553 with the Internal Revenue Service (IRS). If you start your business as a Utah LLC, you have to complete Form 8832 to elect corporation status before you can begin filing Form 2553 to elect S Corp status. 

Now, let’s review what running an S Corporation generally involves. 

Pros and cons of creating an S Corporation

Business decisions usually come with positive and negative attributes. Deciding whether to start an S Corporation is typically no different in this regard. Below, let’s go over some of the positives and negatives of starting an S Corp. 

Pros

Typical benefits of an S Corp can include: 

  • The option for cash method accounting
  • Asset protection
  • Pass-through taxation
  • The option to characterize income in a more favorable way

For your business’s unique needs, these benefits might far outweigh any disadvantages of running an S Corporation. Financial and legal services professionals can help you make a sound determination about whether an S Corp is right for you. 

Cons

Disadvantages of running an S Corporation can include: 

  • Additional formation and maintenance requirements
  • More involvement from the IRS
  • Strict eligibility requirements and limitations
  • Stock ownership restrictions

Depending on the kind of business you want to run, there could be more disadvantages. It’s best to discuss your options with legal experts and tax professionals before making a decision. 

Get help establishing a Utah LLC with S corp tax election

You can often achieve the most in business when you have good support. Our purpose is to offer that support. If you want to start an S Corporation, we can help you do it quickly with our S Corporation Service. Our many services are here to help you with your business formation, maintenance, and compliance needs.

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Utah S Corp FAQs

  • Yes, an LLC can choose S Corporation status. Each LLC owner is different, but many make the S Corp election for tax benefits, such as more favorable employment taxes. Taxes might play a big role in whether you choose to make your LLC an S Corp. You can read more about LLC tax liabilities on our Tax Information for Limited Liability Companies page. 

  • There are many benefits to creating an S Corporation, including the ability to run a business that limits your personal liabilities while maintaining lighter tax obligations.

  • Your business’s name must include wording or abbreviations that identify what kind of entity it is under Utah law.rnrnIt can’t include words that suggest the business is affiliated with certain organizations, and it has to be distinguishable from other names on record with the state.rnrnOtherwise, choosing a name for your S Corporation boils down to what you believe is best.

  • You identify your LLC as an S Corporation by filing the proper paperwork with the IRS.

  • How you calculate your S Corporation’s taxes depends on the unique attributes of your business. It’s best to speak to a tax professional about your specific options and obligations.

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

Create Your Utah S Corporation