Business Formation Frequently Asked Questions
Business entities come with a variety of tax benefits. Depending on your business, you could save thousands in self-employment taxes by taking the S Corporation election. There are several steps involved. To be treated as an S Corp, after forming a corporation or LLC, the shareholders must make an election with the IRS. In addition, you will need to pay yourself a reasonable salary as a W2 employee and set up payroll and withholding. If your business is profitable, your payroll taxes and income tax from this salary may be offset by the savings you achieve on the self-employment tax. Important: for existing entities, the election must generally be made by March 15th of the year the election is to be effective.
In addition, a business generally can deduct the expenses directly related to its business activity — think advertising expenses, mileage, or professional services like what Block Advisors provides. Business credits for things like renewable energy, employee retirement plan, or health insurance may also be available depending on your circumstances. These credits would reduce a tax bill dollar for dollar.
The decision to form a business entity and take an S Corp election is an important one that includes many additional considerations. For example, as the owner of a business, you also need to ensure your business financials are maintained and updated (if you’re not already) and stay on top of annual business filing and other requirements depending on your state and industry. You may want to seek the advice of an attorney to evaluate these considerations. Our products, services, and advice are not a substitute for an attorney, and we do not provide legal advice or perform services performed by an attorney.
Here’s a great article detailing potential incorporation tax benefits for small businesses.
How you choose a business structure depends on a lot of things. Each structure comes with its own specific rules, requirements, and considerations. The most common types of businesses are:
- Sole Proprietorships
- S Corp
- C Corporations
Read on to learn more detail about different business structures.
An EIN is an employer identification number and is needed in certain situations. For example, partnerships and corporations are required to have an EIN. Sole proprietorships and LLCs that have employees, pay excise tax, or contribute to a retirement plan also need an EIN. EINs are included with all of our packages.
An S Corp is a tax election for a small business corporation or LLC that allows the company to pass its income, loss, deductions, and credits through to its owners. The company itself is not subject to tax. And that income is subject to the shareholder’s individual tax bracket, which may be lower than self-employment tax.
To take an S Corp election, you’ll need your original business filing documents (either as an LLC or corporation) and an employee identification number (EIN). For an LLC, you will need to have “checked the box” to be taxed as a corporation. You will then file Form 2553, Election by a Small Business Corporation, with the IRS. If you select our S Corp product, we’ll take care of that for you.
While an S Corp election can help reduce your tax liability, there are a few extra steps you’ll need to do as part of your business operations. One of the biggest is making sure you’re drawing a reasonable salary and filing the necessary quarterly payroll and tax forms. You’ll also need to ensure your business financials are maintained and updated, as well as annual business filing requirements depending on your state and industry.
An LLC (or limited liability company) is popular among business owners because of the versatility that often comes with the LLC business structure. LLC owners typically have less formalities imposed on their business than other entity structures. If the LLC does not make the S Corp election, default tax rules mean LLC members must pay self-employment tax. If the LLC makes the S Corp election, working LLC members are treated as employees and their wages are subject to employment taxes. The LLC business structure is often recommended for smaller organizations.
Check out this article to learn how an LLC is taxed.
Often a sole proprietor means someone who operates a business but reports the income on their individual taxes and doesn’t have a separate legal entity. LLCs are a legal entity that can provide personal liability protection, even if still owned by a single person. In other words, it can protect the owner’s personal assets from certain business debts or liabilities. Sole proprietors and single member LLCs are taxed in the same way, unless another tax structure (like an S Corp) is elected.
Check out this article to learn more about how a sole proprietor is taxed.
Check out this article to learn how an LLC is taxed.
Most traditional corporations like the ones that are traded on the stock market are C Corp. A C Corp is a tax status that is subject to double taxation — the C Corp pays tax on its income and the shareholders pay tax on the dividends they receive from the corporation. The corporate tax rate is less than the individual tax rate.
A nonprofit is a business structure that has requested tax-exempt status from the state and/or IRS. The nonprofit does not pay tax on its income provided the income is from activities associated with the nonprofit’s charitable purpose. Examples of nonprofits can range from charities to your kids’ local sports club.
We are happy to help! If you have questions, live support is available Monday through Friday, 8:00AM – 6:00PM Central Time. You may email info@mail.incorporate.hrblock.com or call (877) 472-1095. You can also access the chat function through the account management portal.
The main purpose of a registered agent is to provide a reliable way for others, including the public and the state, to contact your company. Registered agents are required in most states for LLCs and corporations. If you form a company in your state, you can choose to be the registered agent. Alternatively, there are providers available to serve as a registered agent on your behalf.
We want you to be 100% satisfied with Block Advisors Business Formation Products and Services. If you feel there was a problem with any Block Advisors Business Formation Products and Services you purchased, please contact us at 877-472-1095 and we will work with you to resolve the situation.
See the Block Advisors Business Formation Terms of Use for additional terms and conditions.
The main difference in the way the business is taxed. C Corp are taxed twice — the business pays taxes, as do the shareholders on their profits. When a business takes an S Corp election, only the shareholders pay taxes on their profits.
Read on to learn more detail about different business structures.
Filing for an LLC can be very simple. Depending on the state you file in, you just need to file the appropriate formation documents with the Secretary of State’s office in the state. To do this with Block Advisors, you’ll need to choose a business name. You’ll also need an EIN, and to obtain that, you’ll need your social security number, individual taxpayer ID, or EIN of the responsible party, the business name, and business address. You may also have an operating agreement, especially if you have more than one LLC member, which documents all the rules and responsibilities of the members.
Once the LLC is registered and you have your EIN, there are some ongoing business formalities you’ll need to take care of, and those vary by state. For example, you’ll want to make sure you separate your business and personal financials if you haven’t already. That means separate bank accounts at minimum. Your tax filing requirements will depend on how you elect to structure your business (either as a sole proprietor, S Corp, or partnership).
First, you form a corporation by filing incorporation documents with a state’s Secretary of State’s office. To do that with Block Advisors, you’ll need to choose a business name, appoint directors, file articles of incorporation, create bylaws, ensure you’re keeping accurate books and records, and issue stock. As you operate your business, the corporation’s default federal tax status will be a “C Corp” unless you make a valid S Corp election.
C Corp are subject to double taxation. This means the C Corp is taxed on the entity level on its taxable income. When the C Corp distributes the income to its shareholders, the income is taxed as a dividend on the shareholder’s individual tax return.
Certain states require LLCs and corporations to publish an announcement in local papers stating that the business has registered with the state. The notice also provides the name and address of the business along with the name(s) of its owner(s).
Business formation times vary from state-to-state. We process orders as we get them. Clients can select Express Processing or Same Day Processing for faster processing time. Feel free to contact us at 877-472-1095 on specific state processing times.
Block Advisors pricing for business formation starts at $149, which includes state formation, basic documentation, and an EIN. State filing fees are charged separately in addition to our fees and vary from state to state. If you have a question about a specific state, feel free to contact us at 877-472-1095. In addition, there will likely be other costs associated with starting your business, such as opening bank accounts, additional accounting or tax preparation fees, insurance, or obtaining a business license.
Business license requirements vary from state-to-state and even city-to-city. Business owners should contact the city or county registrar or the local Better Business Bureau for licensing requirements.
A nonprofit organization requesting exemption under IRC Section 501(c)(3) uses Form 1023 to tax-exempt status.
Entity formation pricing can vary based on the requirements of the state in which you are registering your business. At Block Advisors, entity formation including EIN application prep generally starts at $149 (Standard) and ranges to $299 (Premium), plus state filing fees. Some states may require entity formation add-ons such as Initial Report for $55 plus state filing fees or publication for $200 plus publishing fees.
Other services include S Corp election for $99, 501(c)(3) application for $495 plus filing fees, Swyft Filings’ Registered Agent Service for $199 annually, or Swyft Filings’ ComplianceGuard service for $149 annually after 14-day free trial.