The costs to create an S corporation vary depending on whether you choose to do it yourself, use an online legal service, or hire an attorney. Before discussing costs, you need to understand the different terminology around S-corps.
While you can’t technically register your business as an S-corp, some online legal services will infer that you can. This marketing language is for simplicity. In reality, they are likely registering their business as a corporation and choosing the S corporation tax status. If you want to form an LLC, for the benefit of less annual paperwork, you’ll likely need to first register the LLC, either by running it yourself or using an online legal service. Once registered, you or the service can submit paperwork to elect S-corp tax status.
Here are the general costs associated with designating your business as an S corporation:
IncFile Initial Business Registration: Free (plus state fees). If you have never registered your business as a legal entity with the state, IncFile will do so for free with a free S-corp election. Typically, online legal services charge around $150 for a company and S-corp registration.
File the IRS form yourself: Free. Submitting IRS Form 2553 to elect S-corp status for an LLC or corporation is free when you do it yourself.
Pay Online Service to Choose LLC S-corp Status – About $50. If you want to use an online legal service, like IncFile, to choose S-corp status, there is a small fee to submit Form 2553 from the IRS on your behalf.
Lawyer: About $500. A lawyer can cost much more than an online legal service, especially if they are drafting operating agreements or articles of incorporation for a complicated corporation.
Franchise Tax: $800 to $6,000. In California, all LLCs and corporations must pay a franchise tax on profits. This tax varies depending on the type of business entity and net profit.
Reminder: Before choosing S-corp tax status, you must register your business as an LLC or corporation. You can do this yourself through your state’s business registration website, an online legal service, or an attorney.
S-Corp Providers
Online legal services help with various legal tasks, particularly those starting a new business, including business formation. If you are considering using a legal service to create the S-corp, here are some popular companies to consider:
1.IncFile
Currently, IncFile has the best offer for registering a business legal entity (LLC or corporation) and S-corp — free, plus any state fees. Typically, registering a business with an online legal service will cost around $100.
- Rocket Lawyer
Rocket Lawyer is an affordable option if you need ongoing legal advice or need to customize legal documents. For $39.99 per month you receive a free S-corp and business registration. With the plan, you also receive unlimited custom legal forms and legal questions answered by an attorney.
- LegalZoom
Compared to Rocket Lawyer, LegalZoom provides some additional legal services such as IP submission. It also offers different pricing structures for legal advice and legal documents. You may want to consider registering your S-corp with LegalZoom if it better suits your particular legal needs.
Alternatives to the S Corporation
You may be wondering what the difference is between an S-corp, LLC and C-corp and how to choose between them for tax purposes. Each structure has its pros and cons. And in some circumstances, it must be a C corporation, such as when there is a foreign shareholder.
LLC
You’ll want to stay an LLC, and not elect S-corp status, if your company doesn’t make more net profit than a S Corp Reasonable Salary for your position. Keeping a simple LLC will save you time by requiring less documentation than an S corporation.
C Corporation
A corporation that does not elect to be an S-corp is designated a C corporation (C-corp). Most companies would prefer not to be a C corporation because they have to pay a 21% corporate tax. However, in certain situations, the company must be a C corporation, such as having more than 100 shareholders, a foreign shareholder, or when trying to attract venture capital.
Single owner
Generally, you will only want to be a sole proprietor if you have a business that has a low risk of being sued by a customer or supplier. Many low-risk businesses save money by skipping the legal step of registering a business as a legal entity. However, registering your business as an LLC or corporation would protect your personal assets if a lawsuit were ever filed against the business.
Bottom line
For most business owners, the decision to become an S corporation is an easy one. If you’re earning more net income than a Reasonable Salary for S Corp Owners position, you could save money on taxes by choosing S-corp status. If you are creating a complicated business structure with multiple shareholders, consider working with a local business attorney to help you with your situation.
