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Swyft Filings is committed to providing accurate, reliable information to help you make informed decisions for your business. That's why our content is written and edited by professional editors, writers, and subject matter experts. Learn more about how Swyft Filings works, our editorial team and standards, what our customers think of us, and more on our trust page.
If you’re looking to start an S corporation in Alaska, there are some key things you need to know. First, there’s more to it than simply making a declaration. An S corp is a pass-through entity that passes the company’s taxes to its shareholders’ returns. It’s essential to understand the ins and outs to be in good standing with the Internal Revenue Service (IRS), which can audit businesses when they file annual taxes.
S Corporation in Alaska: Key Points
S corp status in Alaska is a tax classification, not a business structure. Business owners must start an LLC, or another business structure, before electing S corp status.
Alaska doesn’t have a personal income tax, but it does have a corporate income tax based on federal taxable income.
S corporations are pass-through entities, meaning shareholders can file business taxes on their tax returns, avoiding double taxation on business income.
Unlock tax savings and ensure compliance with critical regulations with our assistance.
What Is an S Corporation?
Business owners in the state of Alaska need to choose a type of tax classification for their entity. This determines how the business will file its taxes each year, which is required by state and federal law and monitored by the IRS. Electing S corp status is one way to do this, which lets business owners pass business income, losses, deductions, and credits to shareholders for federal tax purposes.[1]
S corps are pass-through entities, meaning that instead of filing business taxes separately, taxes pass through to the business’s shareholders. Shareholders then file business taxes on their personal tax returns, which are assessed at their individual tax rates and save them from filing twice.
Remember that an S corp is a tax classification, not a business structure. Small business owners should consider forming a limited liability company (LLC), which has to elect a tax classification, like a C corporation or S corporation. Do research on what tax classification is best for your type of business. For example, an S corp is a pass-through entity, but a C corp is not.[2]
Tax Considerations for an S Corporation in Alaska
As a pass-through entity, the nature of S corps as a tax classification is that they generally make things easier for small business owners because shareholders report all of the business’ income and losses on their personal tax returns. The IRS then assesses the filing at the shareholders’ tax rates. This saves business owners from having to file business income taxes separately.
However, there are other aspects to pay attention to, like certain laws specific to Alaska or taxes that need to be paid other than a federal income tax. Business owners need to pay extra attention to how this tax classification affects how their entity pays taxes and what this means for shareholders.
Alaska Tax Treatment of S Corporations
Alaska businesses must pay a corporate income tax on taxable income. This is based on their federal taxable income with certain adjustments made that are specific to the state. Corporation tax can get more complicated if the entity is a multistate corporation or an oil and gas corporation, but it ’s unlikely that most small businesses will need to worry about this.[3]
According to the Alaska Department of Revenue, tax rates range from 0% to 9.4%, depending on increments of $24,000 or $25,000 of taxable income. Taxable income of $25,000 or below gets a 0% tax rate, while the 9.4% rate is applied to taxable income of $222,000 and over. Taxes must be paid on or by the 15th day of the fourth month after the tax year and due dates cannot be extended.[3]
Alaska Franchise Tax for S Corporations
Contrary to the name, a franchise tax is not a tax on franchises and should not be confused with income tax. Also known as a privilege tax, a franchise tax is a tax some entities must pay if they want to do business in other states. In the case of Alaska, this allows companies to operate in other states or be chartered elsewhere, like the continental United States.[4]
Across the U.S., states that impose a franchise tax need these to be paid in addition to federal and state income taxes. However, certain businesses do not have to pay franchise taxes, like some LLCs, nonprofits, and other entities.[4]
Pass-Through Taxation
Because S corps are pass-through entities, they receive different tax treatment than other types of businesses. Any income, losses, deductions, and credits related to the business pass through to its shareholders.[1] Shareholders are then responsible for filing the business’ taxes on their personal tax returns, which are assessed at their tax rates and save them from filing twice.
Remember that electing S corp status means choosing a tax classification for your business entity. It is not a business structure. Business owners must consider the best structure for their business and then elect a tax classification. For example, consider selecting S corp status after establishing an LLC, which is ideal for small business owners.
Requirements for Forming an S Corporation in Alaska
From Anchorage to Juno, any business owner who wants to form an S corporation in Alaska must go through the same steps. Unfortunately, not all businesses are eligible to elect S corp status. This section will review a company’s requirements for S corp status. Swyft Filing’s online filing service can help you navigate the process smoothly.
According to federal law enforced by the IRS, businesses must meet the following requirements to qualify for S corp status:
Be a domestic corporation, i.e., operate in the United States or U.S. territories
Have only allowable shareholders
Allowable: individuals, certain trusts, U.S. citizens, or estates
Not allowable: partnerships, corporations, or non-resident aliens
Have no more than 100 shareholders
Have only one class of stock
Not be an ineligible corporation, such as certain financial institutions, insurance companies, or domestic international sales corporations[1]
S corp profits and losses will pass to its shareholders for state and federal tax purposes. This can be beneficial because it saves businesses from filing twice and assesses the tax return at personal tax rates. While an S corp election is desirable for small businesses like LLCs, companies must be eligible first.
Filing as an S Corp in Alaska
Once you’ve checked to ensure your business is eligible to elect S corp status, you can proceed with filing. There are several steps, from choosing your unique company name to hiring a registered agent to applying for an Employer Identification Number (EIN).
Each step must be done correctly to ensure your S corp is successfully set up. Let Swyft Filings help you with your S corp formation to save time and money. As the process for filing an S corp varies from state to state, it’s also essential to follow Alaska’s state-specific laws and other federal rules enforced by the IRS. These will differ for each state in which the business operates.
Step 1: Choose a Business Name
The first step in electing S corp status is choosing a name for your entity. Conduct a business name search using the state’s online platform to ensure no other business uses the same name. Doing so could land you into legal trouble by infringing on someone else’s rights.[5] There is also a set of rules that business owners need to follow to make sure their business name is distinguishable.
If you are ready to name your business and want to protect it, file a Business Name Registration, which gives exclusive rights to the name for five years. Suppose you have a name in mind but aren’t ready to form your S corp yet. The state allows business owners to reserve their name for 120 days by filing a Business Name Reservation. All of this is protected under Corporation Statute AS 10.06.[6]
Alaska is unique compared to other states because it allows multiple business licenses owned by different people to have the same name. Business License Statute AS 43.70 states no restrictions on how many business licenses use the same name.[6] Be sure to distinguish this licensing process from the name registration process for your S corporation in Alaska.
Additionally, there are other ways to register your business name, each with its own protections.[7] You can register your entity name, trademark it, file a DBA (an abbreviation for doing business as), or claim your domain name. Registering your entity name protects it at the state level, but trademarking it covers the United States. Consider what would be best for your business.
Step 2: Appoint Directors and a Registered Agent
Alaska state law requires all corporations, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs) that operate in Alaska to have a registered agent. Without one, entities risk non-compliance, which may result in involuntary dissolution.[8] Swyft Filings’ registered agent service can help you find an Alaska registered agent to help keep your business in good standing.
The primary purpose of having a registered agent is to have someone responsible for accepting service of process, which means they are notified in the case of a lawsuit.[8] Agents handle legal documents, like notices or demands, on behalf of the business. Having an agent has other benefits, like providing a physical address and keeping information about the entity.
In addition to a registered agent, business owners can also hire S corp directors. Typically convening in a group as a board, a board of directors acts as the governing body. Their role is to set strategy, oversee management, and meet regularly to ensure the business runs with long-term plans. The S corp’s shareholders elect the board, considering their stake in the company.[9]
Step 3: File Articles of Organization
The Articles of Organization is a formal document containing critical information so that Alaska recognizes the business as fully formed. While it’s not required by state or federal law, it is helpful because it outlines and officially documents some of the basic but critical details of the entity.
The document can be filed online or printed and mailed to the State of Alaska, Corporations Department. The filing fee is $250 and the standard processing time is 10-15 business days.
Each state is different, but according to the state’s online form, your Alaska Articles of Organization should contain the following::
The name of the LLC. (This must contain the words “limited liability company” or the abbreviation of “L.L.C” or “LLC.” Consider the state’s naming requirements before filing this form.)
The reason why you’re forming your business
The business’ registered agent’s name and address
Whether the LLC is managed by its members or a manager
Optional provisions and additional articles
The signature and date of the person/people filing the form
Because electing S corp status means choosing a tax classification, business owners will likely have to file for an LLC before applying for S corporation status. Consider another structure if an LLC isn’t the right fit for your business needs. Once approved, the business will receive a Certificate of Organization from Alaska’s Division of Corporations, Business, and Professional Licensing.[10]
Step 4: Create an S Corp Operating Agreement
Members of an LLC can also consider creating an S corp operating agreement. Similarly to articles of organization, this document isn’t required by state law but has a valuable purpose. This formal, legal document acts as the sole governing document for your business that defines who has the power to make decisions.
This document helps establish who owns the company, which may include the business owners or extend to external shareholders. In any case, these people should be involved in financial and functional decisions. It also helps to outline the internal operations of the entities and document each owner’s responsibilities that need to be done to keep the entity running.
You could include the following pieces of information when drafting your operating agreement:
The names of the business owners
A description of the business structure
A list of each owner’s responsibilities
A brief explanation of each owner’s management style
Step 5: Apply for an Employer Identification Number
Similar to your social security number (SSN), an employer identification number (EIN) is a unique nine-digit number used by the IRS to identify business tax accounts. Usually, business owners who don’t have employees need an EIN when they file business-related tax returns. EINs can be used by employers, sole proprietorships, corporations, partnerships, and other business entities.[11]
Most businesses need an EIN to do meaningful and valuable tasks, like opening a business bank account, getting a credit card, applying for required licenses, and reporting their taxes.[12] If a business owner is self-employed, they may find that they need to pay self-employment tax, which consists of Social Security and Medicare taxes, in addition to income tax.[13]
Step 6: File Form 2553 for S Corporation Election
Lastly, business owners must officially elect their business as an S corp. This is the most crucial step in this entire process because it’s how the IRS recognizes a business as an S corp. This can be done by filing IRS Form 2553 (Election by a Small Business Corporation).
Business owners can make this election any time during the tax year before the tax year they want it to apply to.[14] This can’t be done any later than two months and 15 days after the tax year starts. However, late elections are possible if you can’t file your form on time.
Business owners must file an additional form if they file past the deadline. Known as IRS Form 8832 (Entity Classification Election), this allows the business entity to be taxed as a corporation and must be filed with Form 2553. For more information, contact the Department of the Treasury at the IRS Center in Utah or see here.
Alaska S Corp vs. Alaska LLC
Electing S corp status is essential for tax purposes, but remember that different classifications each come with their unique tax treatment. S corporation election might not be the best decision for you because it has pros and cons regarding liability protection, tax purposes, and more.
Advantages of Starting an LLC in Alaska
LLCs are an attractive option, particularly for small business owners, because they are relatively cheap to form and manage compared to other businesses. Additionally, they can be easier to create, have flexible tax treatment, offer personal liability protection, and aren’t rigid in ownership or management. Swyft Filings’ online LLC filing service can help you start an LLC in minutes and for free.
Disadvantages of Starting an LLC in Alaska
Since an LLC is a business structure, the IRS doesn’t recognize them as a tax classification. Owners need to put in a little more effort to either file for an LLC, another business structure, or settle for the default: sole proprietorship taxation if there is only one owner or partnership taxation for more than one owner. From there, you can elect S corp status.
Advantages of forming an S Corporation in Alaska
S corps shareholders report the company’s income and losses on their personal tax returns. This allows the IRS to recognize individual income tax rates and prevents shareholders from filing twice.
Disadvantages of forming an S Corporation in Alaska
Since S corp election is a tax classification, business owners need to take additional steps when it comes to outlining the structure of their entity or choosing managing members. Having an operating agreement early on can come in handy. Electing S corp status also means your LLC will face stricter administrative requirements than sole proprietorships or limited partnerships.
Ready to File for S Corp Status in Alaska?
If you’re a small business owner or entrepreneur looking to start an S corp in Alaska, consider using Swyft Filings’ S corp filing service to save yourself time and money. We make getting S corp status easy, considering any S corp limitations from the start and state and federal laws. We file the paperwork with fast and efficient turnaround times, letting you focus on running your business.
Maximize Tax Benefits: Experience pass-through taxation with Alaska S corp status and avoid double taxation.
Access a One-Stop Solution: Establish an LLC or C corporation easily and then transition to S corp status, all within our platform.
Stay Compliant: Our compliance alerts help keep you up-to-date on all the complex compliance requirements of an S corp so you can stay on the government’s good side.
Frequently Asked Questions
What is an S Corporation in Alaska?
An Alaska S corp is a business with a tax classification that allows it to operate as a pass-through entity. Any business-related income, losses, deductions, or credits pass through to its shareholders, who then file business taxes on their personal tax returns using their tax rates. This makes it a desirable option for small business owners.
Does Alaska recognize S corporations?
Yes, the state recognizes S corps once they are filed successfully with the IRS. After registering your business in the state, you can elect S corp status as its tax designation with the federal IRS using Form 2553.
What is the turnaround time for filing for S corp status with the IRS?
On average, business owners can expect to be notified of their business entity’s S corp status within 60 days after filing Form 2553.[14]
What is the difference between an S corp and an LLC?
An LLC is a business structure that needs to elect a tax classification. An S corp is a type of tax classification. Forming an LLC is done on the state level with the Alaska Department of Commerce, Community, and Economic Development while electing the tax classification is done on the federal level with the IRS.
What are the requirements for an S corporation in Alaska?
Not all entities are eligible, meaning they must fit specific requirements to qualify for S corp status. According to the IRS, entities must operate domestically in the U.S., appoint only allowable shareholders (individuals, certain trusts, or estates), have no more than 100 shareholders, and have only one class of stock, among other requirements.[1]
Are taxes for LLCs and S corps the same?
No, LLCs are a type of business structure that need to elect a tax classification. An S corp is a tax classification. However, there are three other classifications to choose from: C corp, partnership, or sole proprietorship. Each tax classification serves a different purpose and has pros and cons. For example, only some are pass-through entities, while others are not.
What is the S corp tax rate?
It depends on the individual shareholder’s tax rate. Since S corps are pass-through entities that require shareholders to file the entity’s taxes, tax rates are assessed at each person’s tax rate. Alaska does not have an individual income tax. However, it does have a 2-9.4% corporate income tax rate.[15]
How do I dissolve an S corporation in Alaska?
To close a domestic LLC, business owners must file an Articles of Dissolution and pay a fee of $25. For this request to be approved, the entity must be in good standing, including all state fees and annual reports being filed and paid.
Bibliography
Internal Revenue Service. “S Corporations.” Accessed May 15, 2023.
Internal Revenue Service. “Forming a Corporation. “Accessed May 15, 2023.
Alaska Department of Revenue: Tax Division. “Corporate Income Tax.” Accessed May 16, 2023.
Investopedia. “Franchise Tax Definition, Rates, Exemptions, and Example.” Accessed May 16, 2023.
Department of Commerce, Community, and Economic Development. “Business Licensing: Selecting a Name for your Business.” Accessed May 16, 2023.
Department of Commerce, Community, and Economic Development. “Corporations: Reserve or Register a Business Name.” Accessed May 16, 2023.
U.S. Small Business Administration. “Choose Your Business Name.” Accessed May 16, 2023.
U.S. Small Business Administration. “Corporations: Registered Agents FAQs.” Accessed May 16, 2023.
Investopedia. “Board of Directors: What It Is, What Its Role Is.” Accessed May 16, 2023.
State of Alaska Division of Corporations, Business and Professional Licensing. “Articles of Organization: Domestic Limited Liability Company.” Accessed May 22, 2023.
Internal Revenue Service. “Topic No. 755, Employer Identification Number (EIN) – How to Apply.” Accessed May 22, 2023.
Internal Revenue Service. “Employer ID Numbers.” Accessed May 22, 2023.
Internal Revenue Service. “Self-Employment Tax (Social Security and Medicare Taxes).” Accessed May 22, 2023.
Internal Revenue Service. “Instructions for Form 2553 (12/2020).” Accessed May 22, 2023.
Tax Foundation. “Taxes in Alaska.” Accessed May 22, 2023.
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