Start an S Corporation in Idaho

Filing for S corp status with the IRS might save your Idaho small business money on taxes. But it’s not an easy decision, and not every business entity is eligible. 

This article will review the ins and outs of S corporation status and show you how to start an S corporation in Idaho.

S Corporation in Idaho: Key Points

• An S corporation is a business entity that elects S corp tax status with the IRS.

• Eligible corporations or LLCs must meet specific criteria to elect S corp status.

• You must file Form 2553 with the IRS to be an S corporation.

What Is an S Corporation?

The term “S corporation” does not refer to a business structure. Instead, an S corporation is a business entity, whether a partnership, C corp, or limited liability company (LLC), that has elected S corp status with the IRS. Because of this, the term S corporation refers to the business’s tax status with the Federal government. 

An S corporation has pass-through tax status with the IRS, similar to an LLC or partnership. This means that the company’s profits and losses are passed to its shareholders’ personal income tax returns instead of paying Federal corporate income taxes. For C corporations, this can provide shareholders large tax savings.

Tax Considerations for an S Corporation in Idaho

Aside from pass-through taxation for Federal income tax, what can you expect to pay for taxes as an S corporation in Idaho? 

Idaho Tax Treatment of S Corporations

Idaho S corps are subject to the Idaho corporate income tax at the rate of 6%.[1] But as a pass-through entity, these taxes will be paid on what the state calls the “owner level,” meaning by the S corp shareholders on their personal tax returns.

Idaho Franchise Tax for S Corporations

Idaho does not levy a franchise tax on its businesses. But every shareholder in your S corporation who owes Idaho income tax will owe a $10 Permanent Building Fund (PBF) business tax.[2]

Pass-Through Taxation

On the state and Federal level, your S corporation receives “pass-through” tax treatment, meaning that tax bills pass through the entity itself and onto the tax returns of the company’s shareholders. This means they avoid the dreaded double taxation that owners of C corporations have to pay.

S Corporations & Self-Employment Tax

Anyone who works on behalf of an S corp receives compensation as an employee, including shareholders. But after they’ve received a “reasonable” salary for their work, shareholders can draw distributions from the company’s profits without paying self-employment taxes. This is a significant advantage S corps have over LLCs.

Requirements for Forming an S Corporation in Idaho

For the IRS to approve your business entity as an S corporation, it must meet the following requirements:[3]

• Be a domestic corporation or LLC

• Have no more than 100 shareholders

• Not have corporations, partnerships, and non-resident aliens as S corporation shareholders

• Only issue one class of stock

Note that some financial institutions and insurance companies are ineligible. This probably doesn't apply to you unless you’re in the financial sector.

A business will only receive S corp status from the IRS if it meets these requirements. Those that do can “elect” S corp status with IRS Form 2553. This is called filing an S corp election.

Filing as an S Corp in Idaho

Here’s how you start an S corporation in Idaho. If you have already incorporated an Idaho business, Step 6 will show you how to file for S corp status with the IRS. These steps will walk you through starting a C corporation before converting it to an S corporation.

Step 1: Choose a Business Name

To form a corporation in Idaho, you must choose a business that has one of these words or an abbreviation: 

• Incorporated

• Corporation

• Limited

• Company

In addition, your business name must be distinguishable from other registered businesses in Idaho. Having a different business signifier is an insufficient difference that does not make it distinguishable.[4] Before you run into problems with distinguishability, conduct a name search with the Idaho Secretary of State database or use our free business name search tool.

You can file a name reservation on Idaho SOSbiz when you find an available name. The filing fee is $20, and the reservation lasts 120 days.

You should also consider whether your business name is available as a website domain and on relevant social media platforms.

Step 2: Appoint Directors and a Registered Agent

Corporations are required to govern themselves by a specific structure. Under this corporate structure:

• Shareholders are the corporation’s business owners. 

• Shareholders appoint a board of directors responsible for the company’s overall well-being and required to meet at least annually.

• Board of directors hire corporate officers to run the day-to-day business operations.

It’s not uncommon for a small business to be owned by one or two shareholders who are also its board members who also perform the duties of corporate officers. But whether there are three people in your company or 300, your S corporation shareholders must appoint at least one S corp director before registering the business.

If you’re creating an LLC, you won’t need to follow this structure. Your LLC’s owners will be legally known as its members, and you won’t need to form a board.

Finding an Idaho Registered Agent

Every Idaho business must also have a registered agent on file with the state. A registered agent receives legal correspondence, such as a subpoena or service of process, on behalf of your business.  

Your Idaho registered agent must have an Idaho street address (not a P.O. box) and keep normal business hours to receive legal documents in person.

Hopefully, you won’t have to think too much about your registered agent on a day-to-day basis. But if you are in a complex legal situation, you will want an experienced and professional Idaho registered agent to back you up. That’s why we recommend you sign on to Swyft Filings’ registered agent service when you start your S corp.

Step 3: File Articles of Organization

The articles of incorporation make your business official with the Idaho Secretary of State’s office. When you file this, you’ll want to get everything right the first time. Otherwise, you’ll have to pay the $100 filing fee again.

For LLCs, this form is called the certificate of organization or certificate of formation.

You can print the form and mail it to the Secretary of State’s office in Boise, but filing online will save you a $20 processing fee.

To file articles of incorporation, you’ll need the following information:[5]

• Business name

• Number of shares your corporation will issue

• Name and address of your Idaho registered agent

• Name and address of at least one person incorporating the business

• Corporation’s mailing address

Listing the names and addresses of the board of directors or officers is optional. Remember that once this registration is accepted, it will be part of the public record.

Now that your business is official, you’ll owe an annual report at the start of each tax year, which will keep the corporate records you provided in your articles of incorporation up to date.

Step 4: Create an S Corp Bylaws

The articles of incorporation lay out the who, what, when, and where of your corporation. However, your bylaws are fundamental because they detail how your S corp will be run. LLC members typically sign a similar document called an operating agreement. 

Your S corporation’s shareholders should sign the bylaws. Your board of directors will refer to the company’s bylaws to carry out their duties.

Bylaws answer such critical questions as: 

• What is the responsibility of each corporate officer? 

• How often will the board of directors meet and make decisions? 

• How will shareholders be compensated? 

• If the organization needs to sell, file for bankruptcy, or dissolve, how will these decisions be made?

Especially if you’re working with multiple S corp shareholders, you don’t want to leave these decisions under handshake or unspoken agreements. We can help you draw up solid bylaws for your corporation when you’re ready.

Step 5: Apply for an Employer Identification Number

Your Employer Identification Number (EIN) is your Idaho S corp’s social security number. You should get one from the IRS as soon as you incorporate your business.

You need an EIN to pay Federal tax, including income, payroll, and employment taxes. But you’ll also need it to perform basic functions of your business, like setting up a bank account, applying for a credit card, and acquiring licenses and permits from the state, cities, and counties where you’re operating.

Step 6: File Form 2553 for S Corporation Election

You may have noticed that you can’t incorporate an S corp directly from the Idaho Secretary of State. That’s because you must file Form 2553, an S corporation election, to the IRS.

If you meet all the S corp requirements and deadlines, Form 2553 is fairly simple. But before you file and wait the 60-day turnaround period, you’ll want to be sure that you qualify for S corp status and all the shareholders are ready to sign on.

If you want S corp status for the current tax year, file Form 2553 within two months and 15 days of the beginning of that year. Alternatively, for the coming tax year, anytime is fine.[6]

LLCs that have missed the deadline for the current tax year will also need to file IRS Form 8832 at the same time they file Form 2553.

Idaho S Corp vs. Idaho LLC

Weighing various tax treatment options for your new business? Here are some factors to consider when deciding between an S corporation and a limited liability company (LLC).

Advantages of Starting an LLC in Idaho

LLCs have a simple management structure, pass-through tax treatment that avoids double taxation, and limited liability, separating your personal assets from your business’s. But in comparison to S corps, the ease of management is key. LLCs have no board of directors and much less paperwork.

Disadvantages of Starting an LLC in Idaho

If your Idaho LLC is netting significant profits, all the money you’re bringing in will still be taxed as self-employment income. As a shareholder in a traditional corporation, this wouldn’t be the case. So if you’re looking to file your LLC for S corp status, it’s usually for tax purposes.

Advantages of forming an S Corporation in Idaho

S corps have the major benefits of an LLC, including limited liability and pass-through tax treatment. But, after receiving “reasonable” compensation for their contributions to the business, shareholders can draw distributions out of the company’s profits that aren’t subject to self-employment tax.

Disadvantages of forming an S Corporation in Idaho

For small Idaho LLCs, an S corporation election will increase their administrative burden significantly. If you don’t already run payroll, you’ll have to make it happen, and tax returns get more complex. 

Meanwhile, unless you’re netting substantial profits, you won’t have much reason to switch to S corp status for tax purposes, and the costs could outweigh the benefits.

In addition, the S corp limitations do not apply to LLCs, giving them some operational freedoms that S corps can’t enjoy. For example, S corps can’t have partnerships or corporations as shareholders, while LLCs can.

Ready to File for S Corp Status in Idaho?

Now that you know all the steps and limitations, are you ready to start your S corporation in Idaho? Before you wrestle with the paperwork, consider bringing a formation service onto your team. Thousands of business owners have worked with Swyft Filings to incorporate their small businesses. 

We’re fast, professional, thorough, and affordable. Do your business a favor and let us form your S corporation in Idaho so you can get back to the important work.

Frequently Asked Questions

What is an S Corporation in Idaho?

An S corporation in Idaho is a qualifying business entity that has successfully filed an S corporation election with the IRS.

Does Idaho recognize S corporations?

Yes, Idaho state law recognizes S corporations.

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

The IRS says it takes about 60 days to process S corporation elections.

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

An S corporation is an LLC, partnership, or C corporation that has filed an S corporation election. Meanwhile, a limited liability company (LLC) is a business that has chosen an LLC business structure.

What are the requirements for an S corporation in Idaho?

S corporations are limited in the number of shareholders, cannot be certain financial entities, and can only issue one class of stock, among other limitations. If a company meets these requirements and successfully files an S corp election, they are an S corp.

Are taxes for LLCs and S corps the same?

S corporations are taxed differently than LLCs. They both have pass-through taxation, but S corps compensate their shareholders as employees and can give out distributions that avoid self-employment taxes.

What is the S corp tax rate?

S corps are taxed at the Idaho corporate tax rate of 6% in Idaho. The S corp can pass this to its shareholders' personal income taxes. At the Federal level, the tax rate depends on the income taxes of the S corporation shareholders, who will pay the S corp’s income taxes.

How do I dissolve an S corporation in Idaho?

S corporations can dissolve for free on Idaho SOSbiz or by filing articles of dissolution by mail for a $20 fee.

Bibliography

1. Idaho State Tax Commission. “Income Tax for S Corporations.” Accessed March 6, 2023.

2. Idaho State Tax Commission. “Business Income Tax Rate.” Accessed March 6, 2023.

3. Internal Revenue Service. “S Corporations.” Accessed March 6, 2023.

4. Idaho Uniform Organizations Code. “Preliminary Provisions.” Accessed March 6, 2023.

5. Idaho Secretary of State. “Articles of Incorporation.” Accessed March 7, 2023.

6. Internal Revenue Service. “Instructions for Form 2553 (12/2020).” Accessed March 7, 2023.