Start an S Corporation in Kansas

Are you looking to start an S corporation in Kansas? By electing S corp status, the Internal Revenue Service (IRS) recognizes business owners who pass their company’s income, losses, deductions, and credits to their shareholders for federal tax purposes.[1] 

Entrepreneurs should know there’s more to forming and maintaining an S corp than simply declaring the tax classification they want for their business entity. This article is a guide through the steps and details for starting an S corp, with additional notes on whether or not it’s the right way to go if you’re a small business owner.

S Corporation in Kansas: Key Points

• An S corporation is a tax classification that LLCs and C corporations can elect.

• S corp status offers pass-through taxation and liability protection, among other advantages.

• Business owners must form an LLC or C corporation before electing S corp status with Form 2553.

What Is an S Corporation?

Kansas business owners should recognize that electing S corp status is not a way of structuring their businesses, but rather, it is a type of tax classification. 

When it comes time to file annual taxes, the IRS sees S corps as pass-through entities. Instead of filing a corporate tax return separately, owners can have their company’s profits and losses go through to its shareholders’ tax rates. Depending on the type and size of the business entity, this can have significant tax savings.

To elect S corp status, business owners must first incorporate as a C corporation or limited liability company (LLC). You can form an LLC and elect one of the two corporation types – S corp or C corp – to determine how your business will file its taxes. Note that an S corp is a pass-through entity, but a C corp is not.

Tax Considerations for an S Corporation in Kansas

Remember that electing S corp status means choosing a tax classification and not a business structure. This affects your business and what legal rules it needs to follow. However, there are also a set of state tax rules that Kansas S corp owners need to adhere to.

Kansas Tax Treatment of S Corporations

According to the Tax Foundation, “Kansas has a graduated individual income tax with rates ranging from 3.10% to 5.70%.” Jurisdictions also collect local income taxes and enforce a 4 to 7% corporate income tax rate separate from the federal tax rate.[2] There is no Kansas franchise tax.

As stated, electing S corporation status means the business becomes a pass-through entity. Owners can avoid being taxed twice on corporate income as their tax returns are assessed at the individual’s income tax rates.[1]

Pass-Through Taxation

As of January 1, 2022, House Bill 2239 allows pass-through entities to make an annual election to pay entity-level state taxes for taxable years.[5] For S corps, any shareholder is responsible for filing taxes on behalf of the entity’s profits and losses. The tax rate for the pass-through entity tax is 5.7%.[6]

Owners of pass-through entities can claim a credit against income tax. When filing their income tax return, they can receive a credit equal to their direct share of the Kansas pass-through entity tax.[6]

Requirements for Forming an S Corporation in Kansas

The S corp tax classification is particularly attractive for small businesses and LLCs. However, not just any business can elect itself as an S corp. According to the IRS, businesses must meet the following requirements to qualify for S corp status:[1]

• Be a domestic corporation that operates in the United States

• Appoint allowable S corporation shareholders (individuals, certain trusts, U.S. citizens, or estates)

• Have no more than 100 shareholders

• Have only one class of stock

• Not be an ineligible corporation (certain financial institutions, insurance companies, or domestic international sales corporations)

Shareholders must take on their entity’s corporate taxes at the state and federal levels. For this reason, the entity must operate in the U.S., among other requirements. You should check that your business and its shareholders fit the qualifications above before applying for S corp status.

Filing as an S Corp in Kansas

From choosing your unique business name to hiring a registered agent and applying for an Employer Identification Number (EIN), this step-by-step guide will show you how to register your S corporation in Kansas.

Please note that the S corp filing process varies from state to state. Business owners who disregard state rules may pay unnecessary filing fees or get into legal trouble.

Step 1: Choose a Business Name

There’s more to a business name than meets the eye. On top of thinking of a catchy moniker to create a brand, business owners also need to follow the state’s requirements when choosing a name. 

Before registering a business, you need to ensure your business name is not identical or similar to an existing business in Kansas. To do so, you should complete a business name search. You can use our free business name search to verify your name availability today.

If you want to claim your name but need extra time to complete your business paperwork, consider filing a name reservation. You can complete this online via the Kansas Business Filing Center to hold your name for 120 days.[7]

Step 2: Appoint Directors and a Registered Agent

S corp shareholders might consider appointing a director or board of directors. An elected board can help conduct shareholders’ meetings, document meeting minutes, and write corporate bylaws.[8]

In addition, every business owner must have a registered agent for their entity.[9] The Office of the Secretary of State requires that all business entities have a Kansas registered agent to accept service of process and governmental correspondence. A registered agent, or resident agent, can be an individual or another entity that abides by state law.[10]

Registered agents help with a business’s administrative burdens and deal with legal issues if or when they arise. If a company is sued, the agent is responsible for receiving the legal documents, also known as summons. 

If you’re looking for a professional Kansas registered agent, our registered agent service ensures your documents get to your business as quickly as possible.

Step 3: File Articles of Organization

The next step in establishing your business is filing your Articles of Organization. The filing fee for Articles of Organization following LLC formation ranges from $160 to $165.[11]

At a minimum, your Kansas Articles of Organization should contain these key pieces of information:

• Business name and address

• Registered agent’s name and address

• Statement regarding the registered agent’s consent

• Indication of whether the business is member- or manager-managed

• Declaration to form an Operating Agreement

The Kansas Office of Revisor of Statutes has more information on how to file your Articles of Organization correctly to receive a certification of formation. Because electing S corp status means choosing a tax classification, business owners must file for an LLC or corporation before applying for S corp status. 

Step 4: Create an S Corp Operating Agreement

As stated in your Articles of Organization, business owners can choose to create an S corp operating agreement. This legal document identifies and establishes the business owners or members of an LLC. It’s the only document verifying who owns the company and who should be involved in business matters, among other details.

When drafting your operating agreement, you should also describe the business structure. Not only does this document establish the business owners and management styles, but it also outlines the responsibilities that each owner needs to keep track of to keep the entity running.

Step 5: Apply for an Employer Identification Number

Commonly known as an EIN, an Employer Identification Number is similar to an individual social security number (SSN). The IRS uses an EIN to identify your business when you file your tax return regularly. 

You must apply for an EIN to do crucial tasks, such as:

• Opening a business bank account

• Getting a credit card

• Applying for required licenses

• Reporting your taxes

The Kansas Secretary of State refers to this as a federal employer identification number, or FEIN. This is the same as an EIN; however, a business entity ID number is not the same thing as an EIN. A business entity ID number is issued to all businesses that file with the Secretary of State and is used for filings and correspondence with the office in relation to the business entity.[7]

According to the IRS, a sole proprietor without employees and no plans to file excise or pension plan tax returns does not need an EIN. Essentially, if your business is a one-owner LLC, you do not employ anyone else, and you do not file different taxes, then you can use your SSN as the business’s federal tax identification number. However, it’s still wise to apply for an EIN.[7] You can get your free EIN right here on our site.

Step 6: File Form 2553 for S Corporation Election

To officially elect your business as an S corp with pass-through taxation benefits, you must complete Form 2553 (Election by a Small Business Corporation). All shareholders must sign it to be eligible and take full ownership for filing business taxes on their personal returns.

For your S corp status to take effect, make the election at any time during the tax year before the tax year you want it to apply to. Alternatively, you can make the election no more than two months and 15 days after the tax year starts.[13]

If you have an LLC you want to classify as an S corp and are past the deadline, you must file an additional form known as Form 8832 (Entity Classification Election) along with Form 2553.[13]

Kansas S Corp vs. Kansas LLC

There are more differences between an S corp and LLC than only their tax treatment. Keep reading for an informational overview of the pros and cons of S corp election and forming a Kansas LLC.

Advantages of Starting an LLC in Kansas

LLCs are particularly attractive for small business owners. They offer protection against personal liabilities and flexible taxation, ownership, and management options. LLCs are also relatively cheap and easy to form compared to other businesses. 

If you’re a business owner wanting to start an LLC, use Swyft Filings as an online filing service to help you save time and energy.

Disadvantages of Starting an LLC in Kansas

Unlike an S corp, an LLC has no stock options and might pay higher self-employment taxes, especially as a single-member LLC. Furthermore, an LLC might face dissolution if a member leaves the company, leading to a limited lifespan.

Advantages of forming an S Corporation in Kansas

Tax treatment is the most significant benefit of electing your business as an S corp. S corps are pass-through entities, meaning shareholders report the company’s income and losses on their personal tax returns. The IRS then recognizes the filer’s individual income tax rates because they filed on a personal return. This also prevents shareholders from facing double taxation.

Disadvantages of forming an S Corporation in Kansas

Electing S corp status might mean facing stricter administrative requirements. While S corps have flexibility when filing taxes and ownership, they must choose a tax classification and manage members and directors. 

Ready to File for S Corp Status in Kansas?

Swyft Filings’ S corp filing service helps small business owners save time and energy by making sure everything is done correctly from the start. With fast turnaround times, we provide a quick, easy, and reliable formation service to get you S corp status.

Forming and maintaining an S corp in Kansas requires time, money, and attention to detail. Business owners must do each step correctly to ensure their business gets up and running and follow laws on both the state and federal levels. A solution to ensuring your S corp goes through the process from start to finish is Swyft Filings online service.

Frequently Asked Questions

What is an S Corporation in Kansas?

An S corporation is a tax classification that passes any business income, losses, deductions, or credits to its shareholders. Shareholders file business taxes on their tax returns using their personal tax rates.

Does Kansas recognize S corporations?

Yes, Kansas’ Department of Revenue recognizes S corps once they are filed successfully with the IRS. Business owners can form an LLC or C corporation and elect S corp status. Kansas business owners must also file an S Corporation income tax return as long as they do business in the state, regardless of whether or not a tax is due.[14]

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

On average, business owners will be notified of their business entity’s S corp status within 60 days after filing Form 2553.[13]

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

The main difference is that an S corp is a type of tax classification, not a business structure. This election goes through the IRS. An LLC is a formal business entity that can elect S corp status.

What are the requirements for an S corporation in Kansas?

According to the IRS, business entities must fit certain requirements to qualify for S corp status. Eligible businesses must: 

• Operate domestically

• Appoint only allowable shareholders (individuals, certain trusts, and/or estates)

• Have no more than 100 shareholders

• Have only one class of stock

• Not be an ineligible corporation

Are taxes for LLCs and S corps the same?

No, LLCs are business structures that must elect a tax classification. How LLCs are taxed depends on the type of tax classification they choose: S corp, C corp, Partnership, or Sole Proprietorship. Note that some of these are pass-through entities, while others are not. Each tax classification serves a different purpose and comes with pros and cons to its type of tax treatment.

What is the S corp tax rate?

The Kansas Department of Revenue states, “S corporations are generally exempt from tax. Each shareholder includes the income, or loss, from the S corporation on his or her income tax return.”[15]

How do I dissolve an S corporation in Kansas?

The dissolution, cancellation, or withdrawal of a business entity can be done online through the Kansas Secretary of State website. The online filing requires business owners to provide: 

• The entity name and/or entity ID number on file

• Proof of being active and in good standing

• A record that all annual reports are on file

• Verification[16]

Bibliography

1. Internal Revenue Service. “S Corporations.” Accessed March 25, 2023.

2. Tax Foundation. “Taxes in Kansas.” Accessed March 25, 2023.

3. Investopedia. “Franchise Tax Definition, Rates, Exemptions, and Example.” Accessed March 25, 2023.

4. Kansas Department of Revenue. “Franchise Tax.” Accessed March 25, 2023.

5. Kansas 2021-2022 Legislative Sessions. “HB 2239.” Accessed March 25, 2023.

6. Deloitte. “Kansas enacts pass-through entity tax election.” Accessed 25, 2023.

7. State of Kansas: Office of the Secretary of State. “Business Entity - FAQ.” Accessed March 25, 2023.

8. Investopedia. “What is an S Corp?” Accessed March 27, 2023.

9. Kansas Legislature: 2011-2012 Legislative Sessions. “2012 Statute.” Accessed March 27, 2023.

10. State of Kansas: Office of the Secretary of State. “Resident Agent and/or Registered Office Amendment.” Accessed March 27, 2023.

11. State of Kansas: Office of the Secretary of State. “Business Service Forms - By Name.” Accessed March 27, 2023.

12. Internal Revenue Service. “Frequently Asked Questions.” Accessed March 27, 2023.

13. Internal Revenue Service. “Instructions for Form 2553 (12/2020).” Accessed March 27, 2023.

14. Kansas Department of Revenue. “Partnership or S Corporation Income Tax - 2022.” Accessed March 27, 2023.

15. Kansas Department of Revenue. “Small Business/Sub-S.” Accessed March 27, 2023.

16. State of Kansas: Office of the Secretary of State. “Dissolution, Cancellation or Withdrawal of a Business Entity Amendment.” Accessed March 27, 2023.