Start an S Corporation in Indiana

When forming a small business, you have important decisions to make regarding your chosen business entity. Your decision affects how the IRS treats your company. 

Here we explore what you need to do to create an S corporation in Indiana and why this specific tax entity may be a good choice for you.

S Corporation in Indiana: Key Points

• An S corporation is a pass-through tax entity where income and losses are taxed via the owner's personal income.

• Indiana follows federal rules for S corp taxation, but has specific rules for income from capital gains.

• Business owners can streamline the formation process by hiring a third-party service to help you form an S Corp by filing the paperwork for you.

What Is an S Corporation?

The Internal Revenue Service (IRS) defines an S corporation (S corp) as a pass-through tax entity. This means an S corp doesn’t pay corporate tax on its income. Instead, all income, losses, deductions, credits, and distributions get taxed via the recipient’s personal income taxes.[1]

An S corp is not a business entity like a C corporation (C corp) or limited liability company (LLC). You have to apply for S corp status separately, which applies to LLCs and standard corporations.

Beyond avoiding the double taxation applied to corporations, S corp Status offers enhanced liability protection. It also protects your business if a member or shareholder leaves, allowing the business to continue operating regardless.

Tax Considerations for an S Corporation in Indiana

Due to S corp status being a tax classification, you must consider both federal and state rules in terms of tax treatment. The following discusses how the state of Indiana treats S corps concerning taxation.

Indiana Tax Treatment of S Corporations

Generally speaking, Indiana applies federal rules for the tax treatment of S corps. As a result, standard pass-through rules apply, with shareholders declaring their income on their personal tax returns.

However, the state has different rules if that income derives from capital gains, built-in capital gains, or passive income. In these cases, the S corp must pay corporation tax at the current rate.[2] If your quarterly estimated tax payments exceed $1,000, you must make this payment.[3]

Indiana Franchise Tax for S Corporations

Indiana is a friendly state for corporations. It maintains a general corporate income tax rate of 4.9% and doesn’t apply local sales taxes beyond the 7% state tax rate.[4]

If you have an S corp, you’ll be happy to know that you don’t have to pay franchise tax in the state. Your business also doesn’t have to pay corporate taxes because all income passes through to your shareholders.

Pass-Through Taxation

In the pass-through taxation model, corporate entities don’t pay tax directly on the income they generate. Instead, tax is paid at the personal level, with each individual income recipient declaring that income on their tax return.

Indiana follows the IRS model for pass-through taxation, meaning an S corp avoids double taxation on its revenue. However, there is currently a bill in the Indiana General Assembly that may provide more options to business owners.

Among other things, this bill authorizes some pass-through tax entities to elect to pay tax at the entity level. This decision is based on each owner’s aggregate business share and gross income. The bill also offers a tax credit for entity-level taxes paid to another state.[5]

Requirements for Forming an S Corporation in Indiana

Beyond the general requirements for forming a corporation or limited liability company in Indiana, the state follows the IRS’s rules for forming an S corporation.[1]

These rules include the following:

• Have up to 100 S corporation shareholders who are individuals, estates, or certain types of trusts

• Be a domestic corporation based in Indiana

• Have a single class of stock

• Not be an ineligible corporation, such as a domestic international sales corporation, some types of financial institutions, and certain insurance companies

Regarding permitted shareholders, the IRS doesn’t allow S corp shareholders to be corporations or partnerships. You also can’t offer shares to non-resident aliens.

With so many criteria to meet, it’s often difficult for small business owners to obtain S corp status. Swyft Filings makes it easy by offering access to an expert team that handles the filing on your behalf.

Filing as an S Corp in Indiana

Creating an S corporation in Indiana requires you to form a limited liability company or corporation first. The six-step Swyft Filings process demonstrates how to do that and covers what you need to do to get S corp status for your business.

Step 1: Choose a Business Name

Every business starts with a name. Crucially, this name has to be one that isn’t currently used in Indiana and that meets the state’s business name requirements.

These requirements are as follows:

• Must be distinguishable from business names registered with the Secretary of State’s office in Indiana.

• Must contain the words “corporation,” “Incorporation,” “Limited,” or a suitable abbreviation based on the type of business you create

• May not contain any words that may lead to confusion between your business and a government agency

The state allows you to use a “Doing Business As” (DBA) name as long as you complete a Certificate of Assumed Business Name or Doing-Business-As form. This form allows you to operate under a different name that may be more marketable than your official business name.[6]

Indiana doesn’t require name reservation as part of its business formation process. However, you can reserve your name for up to 120 days to give yourself time to complete the other steps for creating an S corporation in Indiana.

Finally, make sure you trademark your business name upon forming your company. A trademark ensures you can contest illegitimate uses of the name easily in court.

If you’re struggling to find the right name for your company, Swyft Filings has a business name search service. We help you determine if your name is already in use and handle name reservations on your behalf.

Step 2: Appoint Directors and a Registered Agent

When you form an S corp, you create an Indiana corporation. As such, you must assign S corp directors as part of the setup process. The state of Indiana requires your S corp to have at least one director, though this director can be from Indiana or from out of state.[7]

Most business owners choose their directors from their S corporation shareholders, of which you can have up to 100. The board makes crucial decisions relating to the business, its governance, and its direction.

Beyond a board of directors, your S corp also needs an Indiana registered agent.

Registered agents have several responsibilities, the main one being to receive important legal documents on your behalf. They also need a physical address, meaning they can’t use a P.O. box, and maintain regular business hours.

Indiana doesn’t allow a business to serve as its registered agent, but a business owner or employee can serve as their own registered agent. However, many entrepreneurs choose to use a third-party service. There are several benefits of doing so:

• Reduce the amount of unsolicited mail you receive

• Enhance privacy

• Ensure legal documents don’t arrive at inopportune times

• Relieve the administrative burden of handling incoming documents

• Increase freedom in terms of where and how you run your business

Swyft Filings offers an Indiana registered agent service designed to ensure your business receives crucial documents quickly. In addition to our expertise, you get access to a 24/7 online dashboard. Check documents whenever you want when you work with Swyft Filings.

Step 3: File Articles of Organization

Next up comes the exciting part — officially filing to form your business.

The steps are simple. You complete a form and submit it, online or via mail, to the Indiana Secretary of State. You also have to pay a filing fee. However, the specific form you submit varies depending on whether you form an LLC or a corporation.

For an LLC, you must complete the Articles of Organization form and submit it online via the IN.gov website’s Access Indiana service.[8] Alternatively, you can mail the form to the following address:

Secretary of State

Business Services Division

302 W. Washington St.

Room E-018

Indianapolis, IN 46204

It costs $95 to file the form online or $100 via mail.

You do the same for setting up a corporation, only this time, you complete the Articles of Incorporation form. It costs $80 to file this form online or $90 to send it via mail. You don’t need to pay a franchise tax to incorporate in Indiana.

Both forms request details about your business and ask you to assign a registered agent. You’ll also receive a Certificate of Formation upon successfully completing the process.

Finally, any business in the state must file a biennial report, called a Business Entity Report, every two years with the state. It costs $30 to file this report, though that drops to $22.44 for online filing.[9]

Step 4: Create an S Corp Operating Agreement

If you’ve formed an LLC, creating an operating agreement for your business is good practice. This document allows you to define the company’s bylaws and outline the ownership stakes and responsibilities of all business owners.

The state of Indiana doesn’t require an S corp operating agreement by law, meaning you can skip this step if you prefer.[10] However, there are several benefits to having an operating agreement:

• Establish shareholder roles and ownership stakes

• Solidify the personal liability protection you receive from your business structure

• Avoid disagreements due to supposed verbal agreements because everything is documented

• Prevent the state from using default rules for corporations when handling issues related to your company

Step 5: Apply for an Employer Identification Number

An Employer Identification Number is a unique nine-digit code that serves as a Social Security Number for your S corp. You don’t always need to have one. For example, single-member LLCs and sole proprietorships without employees don’t need an EIN.

However, it’s required by law if you have employees because the IRS uses your EIN to check employment taxes and income tax. Furthermore, there are several reasons why it’s a good idea to get an EIN, even if you have no employees:

• Allows you to open a business bank account

• Lends legitimacy to businesses, ensuring you’re credible to customers and other companies

• May be required when applying for certain types of business licenses or financing

Applying for your EIN online via the IRS website is fairly simple. However, Swyft Filings offers a fast and error-free way to get your EIN, meaning you don’t have to handle the paperwork yourself.

Step 6: File Form 2553 for S Corporation Election

With your business formed and your EIN acquired, your final step is to apply for S corp status. Doing so requires you to file Form 2553, Election by a Small Business Corporation.[11]

The form requires you to include details about the S corporation election, specifically regarding your shareholders. You must provide the name, address, and ownership details of each one.

After completing the form, you can submit it online via the IRS website or send it via mail to the following address:

Department of the Treasury

Internal Revenue Service

Kansas City, MO 64999

Ideally, you should file this form in the tax year prior to the one in which you want to receive S corp status. But if you’re filing late, you have two months and 15 days in the current tax year to submit Form 2553.[12]

If you miss this deadline and have an LLC, there may still be a way to achieve S corp status in the current tax year. Submit Form 8832, Entity Classification Election, alongside Form 2553. Form 8832 allows you to reclassify your company as a corporate business entity.[13]

Indiana S Corp vs. Indiana LLC

While S corp status offers several benefits, you may wonder how it stacks up to simply maintaining an Indiana LLC. The following are the pros and cons of an S corp and a limited liability company.

Advantages of Starting an LLC in Indiana

• Form an LLC with just one person, though you may face self-employment taxes for doing so

• Have a pass-through tax entity and receive the appropriate tax treatment from the IRS

• Get more control over your leadership structure with an LLC

• Get some measure of liability protection with an LLC

Disadvantages of Starting an LLC in Indiana

• IRS treats LLCs as partnerships, which has ramifications for tax purposes

• LLCs have to dissolve if an LLC member leaves or goes bankrupt

• Judges can remove your liability protection in certain cases

Advantages of Forming an S Corporation in Indiana

• Gives you full access to the liability protection offered to a corporation

• Allows you to pay less personal income tax than you do for an LLC

• Avoids double taxation with pass-through taxation

• Transfers ownership easily

• Allows members to leave without dissolving the business

• Provides more credibility in the eyes of some clients and business owners

Disadvantages of Forming an S Corporation in Indiana

• Have to pay ongoing expenses for reporting with an S corp

• Have less control over your leadership structure compared to an LLC

• Must meet strict criteria to use this business tax structure

Ready to File for S Corp Status in Indiana?

With its many benefits related to business income and taxation, an S corporation in Indiana may be the right choice for your Indiana company. However, there’s a lot of paperwork to handle to get to S corp status and criteria you must meet.

That’s where Swyft Filings comes in. Our team has helped over 300,000 companies with their filing needs since 2015. Whether you want to form your LLC or file to become an S corp, we’re here to help. With over 3,000 five-star reviews, you can trust our service to be fast, accurate, and trustworthy.

If you have a small business you want to turn into an S corp, get in touch today, and we’ll get you on the right track.

Frequently Asked Questions

What is an S corporation in Indiana?

An S corporation is a tax entity that doesn’t pay tax at the corporate level. Instead, entrepreneurs and shareholders pay business taxes via their personal income tax returns.

Does Indiana recognize S corporations?

Yes, Indiana recognizes S corporations if they follow the appropriate rules.

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

It can take up to 60 days for the IRS to respond after you file for S corp status.

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

Forming an LLC is an excellent idea to maintain more control over your leadership structure. However, S corp status offers more liability protection to individual shareholders and several tax benefits.

What are the requirements for an S corporation in Indiana?

The IRS’s rules for forming an S corporation include the following:

• Have up to 100 S corporation shareholders who are individuals, estates, or certain types of trusts

• Be a domestic corporation based in Indiana

• Have a single class of stock

• Not be an ineligible corporation, such as a domestic international sales corporation, some types of financial institutions, and certain insurance companies

Are taxes for LLCs and S corps the same?

Both are pass-through tax entities. However, taxes may differ, especially when bringing self-employment tax into the equation.

What is the S corp tax rate?

If your business has S corporation status, its corporate tax rate is 0%. All taxes are paid on your personal income.

How do I dissolve an S corporation in Indiana?

You must complete and file Form IT-966 and BC-100 to dissolve an S corp in Indiana.[14]

Bibliography

1. Internal Revenue Service. “S Corporations.” Accessed March 7, 2023.

2. Indiana Department of Revenue. “Corporate Tax and Sales Tax History.” Accessed March 7, 2023.

3. IN.gov. “S Corporation Income Tax Booklet.” Accessed March 7, 2023.

4. Tax Foundation. “Taxes in Indiana.” Accessed March 7, 2023.

5. Indiana General Assembly. 2023 Session. “Senate Bill 2.” Accessed March 7, 2023.

6. Indy.gov. “Record a Doing Business As (DBA) Certificate.” Accessed March 7, 2023.

7. Justia. “2010 Indiana Code.” Accessed March 7, 2023.

8. Indiana Secretary of State. “Business Forms.” Accessed March 7, 2023.

9. IN.gov. “Business Services Division.” Accessed March 7, 2023.

10. Secretary of State, Business Services Division. “Choosing a Structure and Forming Your Business.” Accessed March 7, 2023.

11. Internal Revenue Service. “Form 2553, Election by a Small Business corporation.” Accessed March 7, 2023.

12. Internal Revenue Service. “Instructions for Form 2553.” Accessed March 7, 2023.

13. Internal Revenue Service. “Form 8832, Entity Classification Election. “Accessed March 7, 2023.

14. Indiana Department of Revenue. “Dissolving, Liquidating, or Withdrawing a corporation.” Accessed March 7, 2023.