As an entrepreneur seeking tax savings, maybe you’ve heard of S corporations and want to know how to start your own Wyoming S corp. But what exactly is an S corp, and where do you begin? This guide is here to answer your questions and get you started.
“S corporation” refers to a tax election a limited liability company (LLC) or a corporation can make. For an LLC, filing as an S corp could provide the owners (called “members” in an LLC) with savings on self-employment taxes. For C corporations (the default form of corporation), S corp status is a way to avoid double taxation.
As we mentioned, an S corp is a tax election, not a business structure. An LLC or a corporation can apply with the IRS for S corp status if it meets the criteria. We’ll outline those criteria and the steps you would need to take to file as an S corp if you decide that it’s right for your company.
We’ll also tell you how our services may be able to help. If you want to form an LLC with S corp status, our S corp service can help you do that. Plus, we offer other services to help you run and grow your business and stay in compliance with state and federal laws.
For more detailed information about S corps, see our “What Is an S Corporation?” page.
Before you get too far in your planning, know that there are a few S corp filing requirements and limitations you should know. Specifically, to qualify for S corporation status, an entity must:
Not all business entities are eligible for S corp election. However, if your business entity meets these requirements, read on to learn about applying for S corp election.
To apply for S corporation status, you’ll need to create either an LLC or a C corporation if you haven’t already done so. Then, you’ll file an election form with the IRS.
If you’re ready to learn about filing as an S corporation in Wyoming, we’ll take you through the process. First, we’ll show you how to form an LLC in Wyoming in steps 1 through 5. If you’d rather form a Wyoming corporation, follow the instructions on our Wyoming corporation page. Then, in Step 6, we’ll explain how to file for S corp status as either an LLC or corporation.
The first step toward forming a Wyoming LLC is selecting a name. Coming up with a distinct name helps your LLC stand out from other companies. This is also an opportunity for you to hone your branding tone and reflect on your mission and vision.
But before you create merchandise with your company name on it, let’s go over some crucial rules about LLC names.
The state of Wyoming has a few basic rules for naming your LLC:
Want to know more about how to name your LLC? Let us help you search Wyoming records to see if your desired name is being used by another business entity in the state. We show you how to check the Wyoming Secretary of State’s database to search for business names that are already in use on our Wyoming business name search page.
While not a legal requirement, you might want to make sure that your chosen business name is available as a domain name before you take the next step. After all, being available online is a big part of running a successful business. Plus, it’ll be easier for people to remember and interact with your business if the website and company names match. We can help you take care of this with our domain name search and domain name registration service. We can even help you set up your website.
Even if the name you want to use appears to be available after you’ve searched the Secretary of State’s database, there’s no guarantee that someone hasn’t already trademarked it at the state or federal level. While there’s no central place to check for all trademarks (some businesses even consult with trademark-specialized lawyers), you can take some measures yourself.
For instance, you can search for state-level trademarks through the Wyoming Secretary of State. To check for federal trademarks, search the United States Patent and Trademark Office (USPTO) database.
In addition to checking state and federal databases, it’s a good idea to conduct extensive internet searches for your desired business name, such as checking domain names and social media sites.
Register Your Business as an S Corp
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Designate a registered agent for your Wyoming LLC. Every LLC in Wyoming is required by law to have a registered agent. This agent is an individual or business entity that receives official paperwork and important legal notices (such as service of process for lawsuits) on behalf of the company.
In Wyoming, there are rules about who can act as a registered agent. In order to serve as a registered agent for a Wyoming LLC, an individual or business entity must:
If an individual serves as your registered agent, they must be at least 18 years of age, reside in Wyoming, and have a physical address in the state.
Legally, a business owner can serve as their own registered agent. However, there are drawbacks to serving as your own agent or having a friend or family member do so.
For starters, if your company is sued, being served with the lawsuit notice in front of customers could be embarrassing or even damaging to your business. Furthermore, if your business moves, you’ll need to remember to update your registered agent address on file with the state.
Also, registered agents need to be available during all regular office hours to receive documents and legal notices. This can be inconvenient when you’re trying to run a business and live your life.
These reasons and more are why many business owners opt to use a professional registered agent service instead. With a professional service, you can:
Our Wyoming registered agent service can match you with a professional service provider.
The next step is to file Wyoming Articles of Organization with the state. Your LLC Articles of Organization are the formation documents that officially create your business. So, if you want the personal liability protection you get from an LLC, you’ll need to make sure you fill them out carefully and completely.
You’ll file your Articles of Organization with the Wyoming Secretary of State. Before filing these formation documents, make sure you have all of the necessary information.
The Articles of Organization is like your business’s birth certificate. When the government accepts them, the Articles of Organization proves that your LLC exists and provides basic information about the company.
Here’s what the Secretary of State requires you to put in your Articles of Organization when you create an LLC in Wyoming:
Help ensure that you accurately and quickly file your Articles of Organization with our business formation service. Answer a few questions about your business, and we’ll provide you with a selection of offerings suitable for your needs and situation. Choose your service(s), and your dream business can be born in no time.
Wyoming charges a $102 filing fee for your Articles of Organization, but there may be add-ons and other costs that bump this amount up (such as fees for licenses or permits in your industry). You can opt for the online filing option or file your documents by postal mail. Find out how much it may cost to form your business on our dedicated Wyoming LLC cost page.
Creating an LLC operating agreement is the next step. A Wyoming LLC operating agreement is an internal document that contains key information about how your business will be run. A comprehensive operating agreement might include:
An operating agreement is where you and your associates can turn if disputes arise (and how you avoid future conflicts in the first place). If the operating agreement doesn’t discuss it, the Secretary of State’s default rules for Wyoming LLCs will apply to your operating procedures.
People starting a company may get so caught up in the formation process that they overlook this critical step. Or they may think that it’s an unnecessary expense. Too often, these same businesses find themselves embroiled in a lawsuit or other disputes that the owners might have avoided if they had written an operating agreement.
Are you unsure as to how to create an operating agreement for your LLC? We offer a customizable template to help get you started.
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 the form to apply for S Corp status. Once your LLC or C corporation formation is approved by the state, you need to file Form 2553, Election by a Small Business Corporation, with the IRS to get S corp status.
The IRS requires that you complete and file your Form 2553:
Here’s an additional important note 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.
Note that all of the shareholders/members must sign the consent statement portion of the form. For more information on when and how to file Form 2553, visit the IRS website.
While S corp classification does come with a number of benefits for some businesses, making this election isn’t necessarily right for all businesses. So, be sure to carefully weigh the various pros and cons before deciding how you want to move forward. 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 aren’t exactly the same as they are for C corporations. Let’s first examine the advantages for LLCs.
A traditional LLC already has pass-through taxation by default, 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 owners 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 taxes (Social Security and Medicare, which add 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.
When the members make an S corporation election, 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 as a business owner. 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 tax on 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. If they didn’t, you could pay yourself an annual salary of nine bucks and avoid contributing anything to Social Security and Medicare.
So, what is “reasonable compensation” to the IRS? 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.” While the terms aren’t completely defined, the IRS seems to consider “reasonable” to be something akin to what others in your field are earning for the same work.
If the IRS determines that your salary isn’t reasonable, it can 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 an LLC without S corp election:
As we listed above, S corps have more qualifications 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 usually monitors LLCs filing as S corps 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 some of the same formalities that C corporations do (such as regular meetings and extensive record keeping), even if they’re not legally required to.
Having an LLC that files as an S corporation likely 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 C corporations is “double taxation.” When the corporation makes a profit, 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 double 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 tax statements.
This can help offset their income from other sources and can be helpful if the corporation loses money in its early years. Still, make sure you’re aware of the IRS’s shareholder loss limitations.
Under the Tax Cuts and Jobs Act, some business owners with S corp election 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 pitfalls:
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.
All S corp shareholders must be U.S. citizens or certain trusts or estates. That might 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. C corporations have this option, but the IRS doesn’t allow it for S corps.
Because of the extra restrictions S corps have, the IRS watches them more meticulously 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, and they may also be able to help you find additional tax savings.
In an S corp, the business itself doesn’t usually pay taxes on income at the federal level. But what about state income taxes?
Wyoming is an extremely tax-friendly state in that it has no corporate income tax and no personal state income tax. However, other standard taxes, such as sales tax, will still apply.
Forming a business can be complicated, but we’re here to make it as easy for you as possible.
When you’re ready to make your move into entrepreneurship, we can help you form a Wyoming LLC with an S corporation designation and provide you with valuable support for all of your business needs moving forward. Contact us today to get started.
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Start Your S Corp in Wyoming
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For an LLC, when the members elect S corp status, they can receive money 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 (Social Security and Medicare) on their salary and not the profits they receive. This can add up to substantial tax savings for some LLC members.
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.
Your S corp status has no bearing on the naming process for your Wyoming corporation or LLC. Whether you file to be taxed as an S corp or not, your business remains an LLC or a corporation and follows the same Wyoming business naming rules.
Before formally registering a business name, you should first search the Wyoming business entity records to make sure that you don’t select one that’s already in use by another business. That aside, however, you can name your Wyoming S corporation nearly anything you want as long as you comply with any applicable state naming regulations.
S corp status may not be the best thing for 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.
Calculating taxes can be frustrating, but you can check out our S corp tax guide to learn more about navigating taxes for your Wyoming S corporation. A certified tax professional can give you more definitive information for your individual circumstances.
Sorry, but right now our S corp service is only for applying for S corp status when you form your LLC with us. We do offer plenty of other services to support your business, though.
The IRS website says you’ll be notified of whether or not your S corp election is accepted within 60 days of filing Form 2553.
If you’re a new LLC, you have 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 business, you would file at any time during the tax year preceding the tax year it’s to take effect.
An LLC is a separate legal business entity, whereas an S corp is 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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