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As a potential small business owner in Georgia, you have to figure out which business entity you want to form. Partnerships, corporations, and limited liability companies are all on the table. But when it comes to how the Internal Revenue Service (IRS) treats your business during tax time, forming an S corporation in Georgia may be your best bet. This article explains how to do it.
An S corporation is a tax classification offered by the IRS.
You must have an existing C corporation or limited liability company (LLC) before electing S corp status.
Owners of S corporations benefit from pass-through taxation, meaning the business pays no corporate tax itself.
Unlock tax savings and ensure compliance with critical regulations with our assistance.
An S corporation is a tax classification the IRS offers to some companies based on a strict set of rules. It’s important to note that S corp status isn’t the same as a business entity. A C corporation (C corp) or limited liability company (LLC) is an entity. An S corp is a tax classification, meaning LLCs and C corps can elect to be S corps.
S corp status grants an organization the opportunity to benefit from pass-through taxation. In an S corp, you elect shareholders who pay tax on the company’s income, losses, credits, and deductions via their personal tax returns. The business pays no corporate taxes itself, hence the pass-through moniker.
In many ways, this makes an S corporation similar to an LLC. Both are pass-through tax entities. However, where an LLC offers more control over leadership structure, an S corp comes with the liability protections typically provided to C corps. Consequently, business owners and members must balance the benefits of each structure against each other to choose the right one for them.
On the basic level, the state of Georgia treats S Corporations the same as the IRS. That means Georgia S Corporations can avoid double taxation on their business earnings. But specific state-level tax considerations exist when forming an S Corp in Georgia.
When you have a C corp in Georgia, you must pay a standard corporation tax of 5.75% on your company’s taxable net income. This rate applies to all corporations that do business in Georgia, receive income from sources in the state, or hold property in Georgia.
However, S corp status means you don’t have to pay this corporate tax. Instead, the S corps shareholders pay taxes on the company’s behalf via their income tax returns. Georgia allows nonresident shareholders to have ownership stakes in S corps. But these shareholders must complete an agreement via Form 600 S-CA to pay personal income tax on their taxable income.
S corporations must complete an annual report in Georgia by April 1 every year. Along with paying a $50 filing fee for this report, the business must also pay a franchise tax called a “Net Worth Tax.”
This tax is calculated on the company’s paid-in capital, which doesn’t relate to business income. Thankfully, the tax is charged at a flat rate between $125 and $5,000, meaning your S corp can grow as large as you want and you never have to pay a Net Worth Tax above $5,000 per year.
Finally, any S corp with a net worth of less than $100,000 doesn’t have to pay the Net Worth Tax, though it must still file an annual report.
Pass-through taxation is any classification in which a company’s income passes through to its members or shareholders without having business tax applied. S corps shareholders can benefit from pass-through taxation, which allows them to avoid double taxation issues.
However, pass-through tax rules only apply to business income. As we see from Georgia’s Net Worth Tax, an S corp may still have to pay state-level business taxes on its assets and paid-in capital. Members and shareholders may also have to pay self-employment taxes, depending on their status in the S corp.
Though you can obtain S corp status if you have a corporation or limited liability company, not all businesses can become S corporations. Georgia requires you to follow the IRS’s rules for forming an S corp, which include the following:
Must be a domestic entity based in the United States
Can only offer a single class of stock to their shareholders
Can have a maximum of 100 shareholders, each of which must be an individual, estate, or some form of trust
Some rules bar certain types of companies from becoming S corps. For example, you can’t apply for S corp status if you run a domestic international sales company, insurance company, or some types of financial institutions.
Furthermore, you can’t be an S corporation shareholder as part of a partnership or if you’re a nonresident alien. A nonresident alien is anybody who isn’t a U.S. national or U.S. citizen. The state of Georgia allows residents of other states to be shareholders in S corps as long as they register to pay income taxes in the state.
The tax treatment you receive when you have an S corporation in Georgia makes applying for S corp status attractive. That’s especially true if you meet the IRS’s rules for becoming an S corp. However, you must form your Georgia business before applying to become an S corp, which this six-step process helps you to do.
Choosing an appropriate business name is your first step to forming an S corporation in Georgia. According to the state’s laws, your name must abide by the following rules:
Be distinguishable from all other business names filed with the Georgia Secretary of State
Contain no words related to banking, insurance, or education unless you have permission from the appropriate governmental office
You can check whether your chosen name is available with Swyft Filings’ free business name search service.
Assuming the name is available, it’s a good idea to reserve your name so no other company can take it. Name reservation allows you to take the time to submit your formation documents without worrying about somebody else using your business name.
Georgia allows you to reserve a name for 30 days for a $25 filing fee. You can extend this name reservation in 30-day increments, with each additional period costing $25. It costs $35 if you file via paper.
Once your company is established, it’s a good idea to trademark the name so you have legal recourse if somebody else uses it. You can trademark your business name via the Georgia Secretary of State website.
One unique aspect of the S corp tax classification is that you need to have a board of directors to maintain S corp status. S corp directors must be at least 18 years old, with Georgia requiring your S corp to have at least one director on its board.
Your directors will usually be S corporation shareholders responsible for running the business, such as the company’s founders. With the board in place, you can move on to selecting a registered agent.
A Georgia registered agent is an individual or business entity that maintains a physical presence in the state. Georgia requires all S corps to declare a registered agent on their formation documents, with this agent being responsible for the following:
Accepting and processing important documents, such as service of process, on your behalf
Maintaining a physical street address on the public record with the Secretary of State (a mailing service or P.O. box is not acceptable)
Keeping regular business hours to ensure they’re available to receive documents
You can serve as your own registered agent in Georgia, which allows you to avoid the cost of hiring a third-party service. However, acting as your own agent comes with several disadvantages.
Privacy is a major concern, as you need to register an address with the Secretary of State. Those who run companies that keep irregular hours, such as restaurants, may also find it impossible to be available during regular business hours. Plus, being a registered agent comes with an administrative burden to which you must commit time.
This collection of downsides leads many Georgia businesses to a third-party registered agent service like Swyft Filings. Our expert team gives you access to an online dashboard, ensuring your documents get to your business as quickly as possible.
It’s time to create your business, which requires you to complete a form submitted to the Georgia Secretary of State. The form you complete varies depending on your business structure:
Limited Liability Company: You must complete Form CD 030 (Articles of Organization) and submit a $100 filing fee for online filing or $110 for paper filing.
Domestic Corporation: You must complete the Articles of Incorporation, which you submit to the Secretary of State. Again, filing fees are $100 for online filing or $110 for paper filing.
In either case, you can file the documents via the Secretary of State’s website or send them via mail, along with your filing fee, to the following address:
2 Martin Luther King Jr. Dr. SE,
Suite 313 West Tower,
Atlanta, Georgia 30334
As mentioned earlier, you must also file an annual report with the state, including paying the Net Worth Tax, a form of franchise tax. Ensure you file this report before the April 1 deadline to ensure your business doesn’t fall out of good standing with the state.
Georgia doesn’t require LLCs or S corps to create operating agreements. Nevertheless, creating them is recommended, especially for business owners who want to solidify the bylaws of their organizations.
Operating agreements are legal documents that business owners use to document their bylaws and define ownership stakes in their LLCs. You can also use an operating agreement to state each member or shareholder’s roles and responsibilities and set processes for various issues affecting your business.
An operating agreement reduces the possibility of internal conflicts and ensures you have processes for unexpected circumstances, such as an LLC member leaving the business.
An Employer Identification Number (EIN) is like a Social Security Number (SSN) for your business. Where the IRS uses an SSN for personal income tax purposes, it uses your EIN when examining the employment taxes your company needs to pay.
That mention of employment taxes may clue you into the fact that not all S corps need to have an EIN. Getting an EIN isn’t a legal requirement if you have no employees. Still, it’s a good idea to get one for several reasons:
Your business receives legitimacy and credibility when it has an EIN
Most banks won’t allow you to open business banking accounts unless you have an EIN
Your EIN is permanent, meaning you’ll have it ready and waiting if you want to hire employees in the future
You’ve officially created your business, received an EIN, and even have an operating agreement. All that’s left is to complete the S corporation election process by filing Form 2553, Election by a Small Business corporation.
You’ll use this form to apply for S corp status and name your shareholders. Ideally, you should submit it in the tax year before the one in which you want S corp status. However, the IRS allows you to submit the form two months and 15 days into the current tax year.
If you miss this cut-off, you may still have a chance to get S corp status in the current tax year. Assuming you have an LLC business entity, you can file Form 8832, Entity Classification Election, to turn your company into a corporation. Submitting this form alongside Form 2553 means you can get S corp status at any point during the year.
If you already have a C corp, achieving S corp status offers obvious benefits for tax purposes. But those with a Georgia LLC already enjoy pass-through tax treatment, so they might not be sure if an S corporation election is right for them.
These pros and cons examine the limited liability company and S corporation structures to help you decide which is best.
Have complete control over the organizational structure and number of members in an LLC
Benefit from pass-through taxation, even if members may have to pay higher self-employment taxes
Liability protection you get from the LLC structure can sometimes be taken away by a judge
Owners often find it harder to attract investors due to the impermanence of the business structure
May be forced to dissolve if an LLC member leaves
Can cycle through S corp shareholders easily if they stick to the 100-shareholder limit
Get corporate-level liability protection with the S corp tax classification
Can easily sell or hand over ownership of an S corp
Must file annual reports and stick to strict rules that don’t apply to LLCs
Get less freedom in organizational structuring with an S corp
Whether you want to create an S Corporation in Georgia or simply start a business in the state, Swyft Filings is ready to help you.
For prospective small business owners, we offer a range of filing services, including our LLC formation service, that help you to get up and running. If you want to achieve S corp status, our S corp filing service helps you file accurately and ensure that the S corp limitations don’t hold you back.
With over 250,000 happy clients under our belts, Swyft Filings can guarantee a fast and accurate filing process. Get in touch with our team to learn more.
Maximize Tax Benefits: Experience pass-through taxation with Georgia 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.
An S Corporation is a pass-through tax classification that can help businesses avoid paying corporate income tax.
Yes, Georgia recognizes S corps and allows them to operate in the state.
It can take the IRS up to 60 days to respond to an S corp filing, though it often takes much less time than that.
There are several differences between an LLC and an S corp regarding tax benefits, management, and liability protection. However, the main difference is that an LLC is a business entity while an S corp is a tax classification.
Georgia S Corps must meet all of the IRS’s requirements for forming an S Corp and pay Net Worth Tax.
No, because S Corps must pay a New Worth Tax like a franchise tax. LLC members may also pay higher self-employment taxes than S Corp members.
S corp shareholders pay Georgia income tax based on their personal income tax rates. One of the main tax advantages of having an S corp is that the business pays no federal income tax on its earnings.
A Georgia S corp must file both a Notice of Intent to Dissolve and Articles of Dissolution with the Secretary of State.
Georgia Department of Revenue. “Corporate Income and Net Worth Tax.” Accessed March 28, 2023.
Georgia Department of Revenue. “S-Corporations - FAQ.” Accessed March 28, 2023.
Finaloop. “Georgia Franchise Tax.” Accessed March 28, 2023.
Internal Revenue Service. “S Corporations.” Accessed March 28, 2023.
Georgia Secretary of State. “How to Guide: How to Reserve a Name.” Accessed March 28, 2023.
Georgia.gov. “Reserve a Business Name with Georgia Secretary of State.” Accessed March 28, 2023.
Georgia Secretary of State. “Trademarks and Service Marks.” Accessed March 28, 2023.
Georgia Secretary of State. “Instructions for completing Form CD 030 (Articles of Organization).” Accessed March 28, 2023.
Georgia Secretary of State. “Filing Procedures for Forming a Georgia Corporation.” Accessed March 28, 2023.
Digital Media Law Project. “Forming an LLC in Georgia.” Accessed March 28, 2023.
Internal Revenue Service. “Employer ID Numbers.” Accessed March 28, 2023.
Internal Revenue Service. “About Form 2553, Election by a Small Business Corporation.” Accessed March 28, 2023.
Internal Revenue Service. “About Form 8832, Entity Classification Election.” Accessed March 28, 2023.
No matter the business type, Swyft Filings can help you form your new company.