Start an S Corporation in Arizona

This guide discusses how to form an S corporation in Arizona, a business entity that provides tax advantages and limited liability protection to small businesses. However, the IRS provides specific regulations and conditions that a business must meet to qualify for S corp status. 

Here we’ll outline the rules and procedures needed to form an S Company in Arizona.

S Corporation in Arizona: Key Points

• An S corporation is a tax classification, not a business entity type.

• S corp status allows corporations to avoid double taxation as gains and losses “pass through” to individual shareholders.

• The IRS has specific criteria an LLC or C corporation must meet before applying for S corp status.

What Is an S Corporation?

An S corporation, also known as S corp status, is a tax classification that allows business owners to avoid double taxation. Unlike a C corporation, which pays taxes on income and then distributes dividends to shareholders as after-tax income, an S corporation passes its gains and losses on to individual shareholders, providing them with a tax break.[1]

In addition, S corporation shareholders may benefit from limited liability protection, meaning that the company’s debts and obligations don’t threaten their personal assets. It’s important to note that an S corporation is a tax classification, not a type of organization.

However, unlike a Limited Liability Company (LLC), which offers flexibility in taxation and management structure, an S corporation has certain restrictions. For example, the number of shareholders is limited to 100, and only one type of stock is allowed. Understanding the guidelines established by the IRS is crucial if you want to maintain your S corporation status.

Tax Considerations for an S Corporation in Arizona

As a tax classification, S corporation status comes with tax considerations that can affect how a business operates and its bottom line. S corporations are subject to specific tax treatment in Arizona, which should be considered when choosing this corporate structure.

Arizona Tax Treatment of S Corporations

Arizona’s corporate income tax applies to S corporations, but the state’s personal income tax does not. Rather than affecting individual shareholders, an S corporation’s income is taxed at the corporate level.

Arizona Franchise Tax for S Corporations

S corporations and other forms of corporations are subject to franchise tax in Arizona. The amount of the tax is based on the corporation’s net worth and is due annually.

Pass-Through Taxation

Pass-through taxation is one advantage of having S corporation status. This means that the corporation’s gains and losses are transferred to the individual shareholders, who then declare them on their individual tax returns. 

As a result, unlike C corporations, which must pay taxes on their profits both corporately and personally, S corporations aren’t subject to double taxation.[2]

Self-Employment Tax

It’s essential to note that S corporations are still subject to certain taxes, including self-employment tax on a shareholder’s employee income. In addition, S corporations must file an annual tax return, Form 1120S, with the IRS.[3]

Requirements for Forming an S Corporation in Arizona

A company must meet certain conditions outlined by the IRS to be eligible for S corporation status in Arizona:

• Be a corporation or LLC

• Have a maximum of 100 shareholders who are citizens or residents of the U.S.[4]

• Only issue one class of stock

• Entitle all shareholders to the same rights and privileges

Not all companies are eligible for S corporation status, and those that are must continue to meet all standards to maintain their status. Our online Swyft Filings service can help ensure you meet all the requirements and guide you through forming an S corporation in Arizona.

How to File as an S Corp in Arizona in 7 Steps

Filing for S corporation status in Arizona requires meeting certain eligibility requirements. Once you have met the requirements, you may file the necessary paperwork with the Arizona Corporation Commission (ACC).[5]

It’s important to note that S corporation status is a federal tax classification affecting state taxes and filing requirements. You must submit all the required paperwork accurately and on time to avoid fines or other legal issues. This process typically involves the following steps.

Step 1: Choose a Business Name

Your business name must comply with the Arizona Corporation Commission (ACC) naming guidelines. Moreover, the name should also contain a corporate designator, such as "corporation," "Company," or "Limited," and it can’t be identical or similar to any already existing Arizona business name.

For that reason, it’s best to run a business name search to confirm that your name is available. You can check your name now with our free business name search. If the name you like is available, you may submit an online name reservation application and pay a fee to reserve it for up to 120 days.

Step 2: Appoint Directors and a Registered Agent

When filing for S corporation status in Arizona, appointing directors and a registered agent is important. This is a unique aspect of filing for an S corporation compared to filing for an LLC.

Directors monitor a company’s management and make crucial decisions on the shareholders’ behalf. In an S corporation, shareholders also serve as directors, who ensure the company complies with all applicable local, state, and federal laws.

A registered agent is an individual or company designated to receive official legal documents on behalf of the corporation. They are responsible for receiving and forwarding critical legal documents, such as tax forms, lawsuits, and other official correspondence, to the appropriate parties within the company.

It’s crucial to remember that all organizations, even S corporations, must choose a registered agent in Arizona. A registered agent ensures a business abides by the law and stays on top of important dates to avoid fines.

A registered agent must be available during regular business hours and have a physical address within the state. While S corporation shareholders can act as the registered agent, hiring a professional service ensures compliance with state regulations and avoids potential legal issues. 

We offer a registered agent service through our online filing platform to assist S corporation shareholders in complying with Arizona laws. We’ll ensure your business runs smoothly and effectively by notifying you of all legal documents and significant deadlines.

Step 3: File Articles of Organization

Before filing as an S corporation in Arizona, it’s essential to research the state's specific requirements. This includes the $50 filing fee for the Articles of Incorporation and the $60 annual report fee due the month after the corporation’s incorporation.[6]

To apply for S corporation status in Arizona, the corporation must first file Articles of Incorporation, or Articles of Organization, with the Arizona Corporation Commission. These records are also known as the Certificate of Formation in some states. The company’s organizational structure, as well as its name, address, and goals, are outlined in the Articles of Incorporation.

You can submit the documents through the Arizona Corporation Commission’s website or by sending them through the mail with the required filing fee to the following address:

Arizona Corporation Commission — corporations Division

1300 W. Washington St.

Phoenix, AZ 85007-2996

Step 4: Create an S Corp Operating Agreement

An S corporation operating agreement is an important document that describes the policies and procedures for running the business. It’s a contract between the shareholders specifying the ownership and management structure, voting privileges, and the directors’ and shareholders’ duties and obligations.

Operating agreements frequently come with bylaws, which outline how the firm will run. Owners of businesses should take considerable care when drafting an operating agreement that covers every facet of their activities. This document can help prevent future conflicts and disputes to ensure everyone is on the same page.

Step 5: Publish Articles of Organization

Arizona businesses must publish their Articles of Organization, also known as Certificate of Formation, within 60 days of being approved by the Arizona Corporation Commission (ACC). 

This publication must feature in a newspaper circulated in the county where the S corporation is located. The cost of publication will vary depending on the newspaper in question.[7]

Step 6: File Form 2553 for S Corporation Election

To obtain S corporation status, business owners must file Form 2553, the official election form. This is the most crucial step to obtaining S corp status. Business owners are required to submit this form within 75 days after incorporation or the start of activities.[8]

If an LLC misses the deadline to apply for S corporation status, the business owner must file Form 8832, Entity Classification Election, along with Form 2553 to be taxed as a corporation. These forms should be submitted together, and business owners should be mindful of the submission deadlines to avoid any issues.[9]

Arizona S Corp vs. Arizona LLC

One of the first choices to make when forming a business in Arizona is registering as an LLC or an S corporation. Both options have unique advantages and disadvantages, so it’s essential to understand what each entails before deciding.[10]

Advantages of Starting an LLC in Arizona

• Limited liability protection for members

• Pass-through taxation for simpler tax reporting

• Flexible management structure

• Lower costs

• Fewer formalities in terms of recordkeeping and governance[11]

At Swyft Filings, we understand that filing for an LLC can be challenging. That’s why we offer an online filing service that makes the process easier and hassle-free. With our service, you can concentrate on expanding your company while we handle the paperwork.

Disadvantages of Starting an LLC in Arizona

• Limited lifespan of the company

• No stock options

• Potential for self-employment taxes to be higher for single-member LLCs

Advantages of Forming an S Corporation in Arizona

• Tax savings

• Limited liability protection for shareholders

• Pass-through taxation for simpler tax reporting

• Ability to raise capital through stock sales

• Potential for tax savings through salary vs. dividend distribution

• Higher level of credibility

Disadvantages of Forming an S Corporation in Arizona

• A limited number of shareholders

• More formalities in terms of governance and recordkeeping

• Additional expenses associated with incorporating and maintaining the corporation

• Restrictions on shareholders and the number of shareholders allowed

By choosing S corporation status for your LLC, you can benefit from the pass-through taxation advantages of an S corp while securing your personal assets from company obligations. As a result, you won’t be required to pay taxes on the earnings from your company at either the corporate or individual level.

Ready to File for S Corp Status in Arizona?

Filing for S corp status can be daunting for small business owners. With so many steps to follow and paperwork to file, it’s easy to feel overwhelmed. That’s where our Swyft Filings business formation service comes in.

By using our service, you can save time and ensure that everything is filed correctly. We are fully aware of the restrictions placed on S corporations and can help you navigate the process to make the best possible choice for your company.

You can quickly file for an LLC with S corp tax status using our service. Our team of professionals will work to guarantee that everything is done properly while we take care of the paperwork for you. 

Don’t be intimidated by the S corporation status application process in Arizona. Use our S corp Swift Filings service, and we’ll handle the paperwork. To learn more about how we can assist you in achieving your business objectives, contact us right away.

Frequently Asked Questions

What is an S corporation in Arizona?

An Arizona business entity with an S corp tax classification is taxed similarly to a partnership or a sole proprietorship. In addition to giving tax benefits, it offers liability protection to stockholders.

Does Arizona recognize S corporations?

Yes, Arizona recognizes S corporations. Business owners must file articles of organization with the Arizona Corporation Commission and submit form 2553 with the IRS to elect S corporation status.

What is the turnaround time for filing for S corp status with the IRS?

The turnaround time for filing for S corporation status with the IRS can vary, but it typically takes between 60 and 90 days.

What is the difference between an S corp and an LLC?

The main difference between an S corporation and an LLC is how they are taxed. S corporations are taxed like sole proprietorships or partnerships, while LLCs are taxed as pass-through entities or corporations.

What are the requirements for an S corporation in Arizona?

A company must be a domestic corporation with no more than 100 shareholders to be eligible for S corporation status in Arizona. Shareholders can’t own distinct classes of stock and must be U.S. citizens or legal residents.

Are taxes for LLCs and S corps the same?

No, taxes for LLCs and S corporations aren’t the same. LLCs can be taxed as a corporation, partnership, or sole proprietorship. S companies are taxed similarly to partnerships or sole proprietorships.

What is the S corp tax rate?

The S corporation is exempt from corporate taxation. Instead, the company passes its shareholders’ gains and losses to them to report the money on their own personal tax returns. As a result, the shareholders are responsible for paying taxes on their portion of the company’s profits rather than the S corporation, which doesn’t pay federal income tax.

The tax bracket of each shareholder affects the tax rate of the company. An S corporation’s profits are taxed at the individual’s tax rate since the IRS considers them "pass-through" income. For 2022, the top federal tax rate for individuals was 37%.[12]

How do I dissolve an S corporation in Arizona?

If you need to dissolve your S corporation in Arizona, you must file Articles of Dissolution with the Arizona Corporation Commission. You must also ensure that all taxes and fees are paid up to date before dissolving the company. The S corporation will officially dissolve once the Arizona Corporation Commission approves the Articles of Dissolution.

Bibliography

1. IRS. “S Corporations.” Accessed April 6, 2023.

2. Cornell Law School. “Pass-through taxation.” Accessed April 6, 2023.

3. IRS. “About Form 1120-S, U.S. Income Tax Return for an S Corporation.” Accessed April 6, 2023.

4. Jackson White Attorneys at Law. “Starting a S Corp.” Accessed April 6, 2023.

5. AZCC.gov. “Ten Steps to Starting a Business in Arizona.” Accessed April 6, 2023.

6. AZCC.gov. “Payment Information.” Accessed April 6, 2023.

7. LLC University. “Arizona LLC Publication Requirements.” Accessed April 6, 2023.

8. IRS. “About Form 2553, Election by a Small Business Corporation.” Accessed April 6, 2023.

9. IRS. “About Form 8832, Entity Classification Election.” Accessed April 6, 2023.

10. Arizona Commerce Authority. “Business Structure (Ownership) Options.” Accessed April 6, 2023.

11. Wyoming LLC Attorney. “Benefits of Creating an Arizona LLC.” Accessed April 6, 2023.

12. Forbes. “2022-2023 Tax Brackets & Federal Income Tax Rates.” Accessed April 6, 2023.