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Filing for S corporation status with the IRS could provide tax benefits to your small business. But it can also be way more trouble than it’s worth.
In this guide, we’ll help you consider the pros and cons of S corp status for your business entity and prepare you to start an S corporation in Louisiana.
An S corporation is a tax designation offered by the IRS.
Eligible C corporations or LLCs can elect S corp status by filing Form 2553.
A business must meet certain qualifications to receive S corporation status successfully.
Unlock tax savings and ensure compliance with critical regulations with our assistance.
An S corporation is a qualifying C corporation or limited liability company (LLC) that files for S corp status with the Internal Revenue Service (IRS). For this reason, S corp status is a tax classification because S corp status refers to the business entity’s taxation at the Federal level. This can be confusing because it is often discussed as a business structure.
Once a business entity becomes an S corporation, it maintains its business structure, whether as a C corporation or LLC. What changes is its tax status with the IRS.
Business entities have to meet certain qualifications to receive S corp status.
Give that S corp status is a special tax classification, what’s in it for your Louisiana corporation?
Since S corp status is a Federal tax treatment your small business receives from the IRS, nothing much changes regarding state taxes. Louisiana S corporations are subject to the Louisiana franchise tax and other relevant corporation taxes, such as income tax and sales tax.
Because shareholders in Louisiana S corporations will pay state income tax on their personal tax returns, an S corporation can exclude that income from its state income tax bill. The amount they can exclude is determined by the percentage of the S corporation that is owned by Louisiana residents.
Louisiana corporate income tax rates on the remaining net income are detailed below.
S Corp Net Income
Louisiana Corporate Income Tax Rate
First $25,000 of net income
The proceeding $75,000 of net income
Net income beyond $100,000
LLCs, including those with S corp status, are exempt from the Louisiana franchise tax. But all Louisiana corporations have to file a franchise tax return at the following rates:
An initial franchise tax of $110
An additional $2.75 on every $1,000 worth of “capital employed in Louisiana” beyond $300,000
S corporations are pass-through entities at the Federal level, which means they avoid the double taxation of C corporations. Instead, S corp shareholders claim the corporation’s profit and loss on their personal income tax returns. This tax treatment is a major advantage of S corporations.
After S corporations pay a “reasonable” salary to its shareholders for the work they contribute to the corporation, they can take distributions in excess of this salary that are not subject to the Federal self-employment tax. This is why some business owners with highly profitable corporations can reduce their self-employment tax liability by forming an S corp.
To form an S corporation in Louisiana, you must be a C corporation or a limited liability company (LLC) that meets the following requirements:
Be a domestic corporation
Have only individuals, certain trusts, and estates as S corporation shareholders (partnerships, corporations, and “non-resident aliens” cannot be shareholders)
Have 100 shareholders or fewer
Issue only one class of stock.
Note that certain financial institutions, insurance companies, and domestic international sales corporations are ineligible for S corp status.
When you file for S corp status, the IRS will check that you meet these requirements. Make sure your business meets these criteria before you file for S corp status, and consider the implications of these restrictions before you file.
Here are the steps to form an S corporation in Louisiana. If you already have an LLC or C corporation up and running, skip to Step 6 to learn about filing Form 2553 to the IRS for official S corp status.
Entrepreneurs starting from scratch or with a sole proprietorship will find all the information they need below.
Your business name needs to be approved by the Louisiana Secretary of State. Here are the guidelines you must follow when selecting your business name.
Your corporation must have one of the following identifiers in the name or at the end:
Your name can’t contain certain words that suggest it’s doing business that it’s not authorized to do. “Bank,” “savings,” and “insurance” are common examples of restricted words.
Your name has to be “distinguishable” from existing and reserved business names on file with the Louisiana Secretary of State’s office.
To check if your name is taken, you can do a business name search online. You can also use our free business name search tool. If your business name matches another name phonetically, you’ll probably have to find another name.
While considering your business name, remember that you’ll want your name to be available on a website and on social media platforms.
Your S corp directors will be responsible for running the business on behalf of its shareholders. The directors are required to meet at least annually. S corporation shareholders appoint these directors.
To start your S corporation, you’ll need at least one director to take responsibility for the corporation’s management. This could be you, for starters. Often, the board of directors will hire officers to run the corporation's daily tasks.
If you’re starting an LLC to file for S corp status, you won’t need to appoint S corp directors, and you won’t have shareholders. LLC owners are called members. These members can hire managers to oversee the business, but they aren’t required to do so.
Your Louisiana corporation will need a registered agent to become an official business. Your Louisiana registered agent agrees to receive official legal documents on your behalf, such as a subpoena or service of process. They must have a street address in Louisiana (not a P.O. box) and keep regular business hours.
Think of this as your business’s “emergency contact” in the event of a legal disaster. You’ll want a professional and reliable registered agent on the premises during business hours who will notify you of important mail discreetly and professionally.
Our registered agent service can fulfill the state requirement for your Louisiana business, ensuring you never miss a legal notice or compliance document.
Your articles of incorporation set out the details of your corporation and, when submitted to the Louisiana Secretary of State, constitute the founding document of your small business.
To file articles of organization, you’ll need the following information:
General purpose of the business
Address of your place of business
Name and address of your registered agent as well as your incorporators
Names and addresses of your corporation’s initial directors
Details about the stock organization of your company, the number of shares you are issuing, the number of classes of shares, and the par value of each (S corporations can only issue one class of stock)
If your business is headquartered in certain counties, you may be required to file your articles of organization online at geauxBIZ. Otherwise, you can mail the form to the Louisiana Secretary of State. The filing fee is $75.
When you file your articles of incorporation, you own a real business. Here are some of your immediate responsibilities:
Owe franchise tax for the tax year in which you incorporated
File an annual report to the Louisiana Secretary of State
Order an optional certificate of good standing (certificate of formation) to show potential partners
Your S corp bylaws are the set of rules and procedures that your corporation agrees to follow. It is a legally enforceable document though it is not legally required. But it’s incredibly important for business owners to sign one.
Your bylaws answer essential questions, such as:
How will shareholders transfer their shares and compensate themselves?
How many people will sit on the board of directors, how long will terms be, and how will new directors be chosen?
Under what conditions will the company dissolve?
If you’re forming an LLC, your company will not have bylaws. Instead, members will sign what’s called an operating agreement.
Your EIN is required to pay Federal income tax and employment tax, but you also need it to pay taxes at the state level. Furthermore, without an EIN, you won’t be able to open a business bank account, apply for loans, or secure the licenses and insurance you need to do business in Louisiana.
Here’s the critical step for starting an S corp in Louisiana. IRS Form 2553 is how you tell the IRS that your business entity wants to “elect” S corp status. This is also called an S corporation election.
To receive S corp status for the current tax year, be sure to file within two months and 15 days of the beginning of the current tax year. If you’re filing for the coming year, you can file anytime. You may need to change your tax year if your business corporation has an unconventional fiscal calendar.
If you wait 60 days only to get your S corp election rejected, the delay could put you past the deadline, and you might have to pay huge fees to maintain S corp status for the current taxable year. To ensure you’ll get it right the first time, have us take care of your S corporation election for you.
If your business entity is an LLC and you are ready to file an S corporation election, make sure you are filing within the deadline. If you’ve missed it, you’ll need to file Form 8832 along with Form 2553.
A Louisiana LLC already has pass-through tax status, which is the main draw for C corporations to make the S corporation election. So why would an LLC be interested in S corp status? There are some fundamental reasons and also some drawbacks.
Louisiana LLCs are very flexible and limber. They can be governed according to an operating agreement between members, who enjoy the liability protection of a corporation. LLCs have straightforward tax treatment as pass-through entities, and they avoid the double taxation of a C corporation.
Limited liability companies are restricted in how they can raise capital because they can’t issue stock. And, unlike a corporation that exists independently of its shareholders, an LLC’s existence is tied to its members.
In addition, the flexibility of management is usually an advantage to a small business, but this depends on the type of business under discussion. Some business owners will want the more formal structure of a C corporation.
Business owners primarily file for S corp status for tax purposes. The tax advantages of an S corporation election come into play when a Louisiana LLC makes substantial profits and wants to distribute them directly to its members.
In this case, the S corporation can pay its members a “reasonable salary” for the work they do for the business. After that, S corp members can take further distributions free of self-employment tax. This tax treatment can substantially decrease tax liability for certain taxpayers who own S corps.
S corporation elections are uncommon because they only provide benefits in specific cases.
S corp status increases a small business’s administrative burden, requiring payroll and more complex tax paperwork. They are also more frequently audited. Often this extra effort outweighs the tax benefits of starting an S corp.
In addition, the S corp limitations that small businesses must accept to qualify for S corp status are substantial and could limit the business plans of Louisiana LLCs.
Many things must go perfectly in order for you to start your S corporation in Louisiana without any delays, which always produces added costs. And especially if you’re new to the process, forming a Louisiana S corporation could take a lot of time.
But it doesn’t have to. Swyft Filings can get the paperwork done for you today. Answer a few questions, and we will form your small business and help you file for S corp status as fast as possible with minimal effort on your part.
We’ve helped thousands of business owners like you start an S corporation in Louisiana. We’ll ensure you meet the S corp limitations and deadlines and save you time and money while you build your small business.
Maximize Tax Benefits: Experience pass-through taxation with Louisiana 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.
Louisiana S corporations have filed an S corporation election with the IRS and have been granted S corp status. S corporations can be LLCs or C corps and have a special Federal tax treatment.
Louisiana law, the Louisiana Secretary of State, and the Louisiana Department of Revenue recognize S corporations.
The IRS says that it generally takes 60 days to receive a decision on your S corporation election. If you use a filing service like Swyft Filings to ensure that your form is perfect, you’ll avoid costly delays.
A limited liability company, or LLC, is a business entity that has chosen the LLC business structure. An S corp is an LLC or C corp with elected S corporation status.
S corporations in Louisiana must have 100 or fewer shareholders and can only issue one class of stock, among other limitations.
LLCs and S corps are both taxed as pass-through entities. Unlike LLCs, S corporations can allocate non-employment distributions to shareholders after they’ve paid “reasonable” compensation to their shareholders.
In Louisiana, S corps pay excise tax and income tax based on net income. At the Federal level, S corps are taxed according to their shareholder’s income tax situation.
To dissolve your Louisiana S corporation, follow the dissolution clause in your corporation’s bylaws or operating agreement, then file an affidavit to dissolve your corporation along with a $75 filing fee to the Louisiana Secretary of State.
Louisiana Department of Revenue. “Frequently Asked Questions.” Accessed February 20, 2023.
Louisiana Department of Revenue. “Corporation Income & Franchise Taxes.” Accessed February 20, 2023.
Internal Revenue Service. “S Corporations.” Accessed February 21, 2023.
Louisiana State Legislature. “RS 12:203.” Accessed February 21, 2023.
Internal Revenue Service. “Instructions for Form 2553 (12/2020).” Accessed February 21, 2023.
No matter the business type, Swyft Filings can help you form your new company.