Start an S Corporation in Nebraska

Whether your Nebraska small business is an LLC, a C corporation, or just an idea, it’s worth learning more about S corp status. This article will tell you if your business entity qualifies for S corp status with the IRS, the potential benefits, and how to form an S corporation in Nebraska.

S Corporation in Nebraska: Key Points

• An S corporation is a tax classification offered by the IRS.

• A business entity must be a domestic corporation or LLC with no more than 100 shareholders and one class of stock to be eligible for S corp status.

• Eligible businesses can apply for S corp status by filing form 2553 with the IRS.

What Is an S Corporation?

An S corporation is a business entity qualified to be taxed as a corporation that has elected S corp status with the IRS. Becoming an S corporation is called an S corp election, which involves one form, IRS Form 2553.

S corp status is available to C corporations, limited liability companies, and partnerships that meet the IRS requirements. Sole proprietorships must incorporate an official business entity to form an S corporation.

A C corp or LLC that elects S corp status is called an S corporation but maintains its original business structure. All that changes is the business entity’s tax status.

LLCs that choose S corp status do not need to form a board of directors. Their “members” become “shareholders” in the eyes of the IRS, but they aren’t considered corporations.

Tax Considerations for an S Corporation in Nebraska

So why would your LLC or C corporation in Nebraska file for S corporation status? Here’s a breakdown of the tax treatment that S corps receive:

Nebraska Tax Treatment of S Corporations

S corporations in Nebraska benefit from “pass-through” tax treatment on income. This means they do not pay state corporate tax.[1] Instead, the S corp shareholders file a Nebraska income tax return and pay their share of the corporation’s tax as part of their personal income taxes.

Nebraska Franchise Tax for S Corporations

Nebraska does not have a franchise tax. But every two years, your business will be liable for a state occupation tax due by April 15 of every even-numbered year.[2]

The occupation tax rate is set according to the amount of paid-up capital stock of the corporation. If this is less than $10,000, the tax is $26. Businesses pay the occupation tax with their biennial report. There are no other state fees for the biennial report.

Pass-Through Taxation

Like limited liability companies (LLCs), S corporations receive pass-through tax treatment on Federal income taxes. This means that they avoid double taxation typical of C corporations. The chance to avoid corporate income tax is why C corporation shareholders consider S corp status.

Potential to Reduce Self-Employment Tax

If you have a Nebraska LLC, you’re accustomed to pass-through taxation. But have you been frustrated with the amount of self-employment tax you owe on every personal tax return? S corps have the potential to lower that tax obligation.

S corp shareholders need to be compensated at “reasonable” rates for all the work they do for the company. But after that, they can receive additional distributions that aren’t subject to self-employment tax. Lowering that tax burden could make filing your tax return much more joyous.

You’ll have to be careful not to underpay yourself, or you could get in trouble with the IRS. But if you’re running a highly profitable business, S corp status could pay off significantly.

Requirements for Forming an S Corporation in Nebraska

Only certain companies can become S corporations. The eligibility requirements for S corp status set by the IRS are as follows:[3]

• Be a domestic company and eligible to be taxed as a corporation

• Have a maximum of 100 S corporation shareholders

• Only issue one class of stock

• Not have corporations, partnerships, and nonresident non-U.S. citizens as shareholders

Certain financial institutions are ineligible for S corp status.

Filing as an S Corp in Nebraska

Here’s how you start an S corporation in Nebraska. First, you have to set up a business corporation or LLC. These steps will show you how to create a C corporation and highlight the differences in starting an LLC. Then you’ll be ready to file for S corp status.

Step 1: Choose a Business Name

Your business name makes you identifiable to the Nebraska Secretary of State as a unique business. Start by conducting a business name search on the Secretary of State’s office website or with our free business name search to see what’s available. You can also email your name to [email protected].[4]

According to state law, your corporate name “must not be the same as or deceptively similar to” an existing or reserved Nebraska business name already registered with the state.[5]

Once you have a name, check web domains and social media platforms to ensure your business can market itself anywhere it needs to. Also, consider trademarks at the state or Federal level.

If you need more time, you can fill out a name reservation form and mail it to the Nebraska Secretary of State’s office in Lincoln with a $30 filing fee. Then you’ll have 120 days to secure the rest of your affairs in order with your perfect name.

Step 2: Appoint Directors and a Registered Agent

If you’re starting a C corporation to file for S corp status, you must build a specific corporate structure. This structure has some crucial differences from an LLC, compared below.

C Corp Structure vs. LLC

If you’re a solo entrepreneur or want to keep the company close for now, you don’t have to build a big company immediately. One person can be the sole S corporation shareholder, director, and CEO. But you’ll want to think through this structure before incorporating and consider bringing on additional S corp directors as your business develops.

Finding a Nebraska Registered Agent

When your business incorporates, you must also list a registered agent. This is a small but significant decision for your business.

If a court of law needs to contact you for any purpose, they’ll reach you via your registered agent. Your Nebraska registered agent needs to keep regular hours at a street office address in the Cornhusker State. This way, any legal correspondence or documents can reach you immediately.

We recommend enlisting a professional registered agent service for your S corp. They are affordable, secure, and have expertise that is extremely useful in a crisis.  

Step 3: File Articles of Incorporation

To officially register your business with the Nebraska Secretary of State, you must file a simple document called articles of incorporation. Here’s what goes into it:[6]

• Business name

• Number of shares your company will issue and the par value and number of shares for each class of shares (S corps can only issue one class of stock)

• Name and street address of your registered agent

• Incoproator’s name and address

You can file articles of incorporation online with eDelivery for a filing fee of $100 or mail the document in with a filing fee of $100.[7]

To incorporate an LLC, you will file a certificate of organization or certificate of formation instead of articles of incorporation.

If you’re starting a Nebraska LLC or nonprofit corporation, you’ll also need to publish an announcement in a local newspaper for three successive weeks.[8] Note that nonprofit corporations cannot have S corp status because as exempt organizations, they are not charged income tax at all.

Now that your business is official, you’ll owe a biennial report on every even-numbered year. This is similar to many state annual reports that keeps your company’s basic information current. You’ll also pay the Nebraska occupation tax, similar to a franchise tax, with your biennial report. 

Step 4: Create S Corp Bylaws

The bylaws for your Nebraska S corporation are its most important governing document. LLCs have a similar document called an operating agreement. All the business owners of a Nebraska S corp, either LLC members or C corp shareholders, sign this document.

Bylaws detail procedures and rules for the business, such as:

• How many S corp directors will there be? Will they have term limits, and how long will those terms be?

• How will conflicts of interest be declared and managed among shareholders, directors, and officers?

• How will shareholders appoint board members?

• When will the board meet? How will someone call an emergency meeting if the necessity arises?

Based on these examples, you can foresee many situations in the life of your business that will cause you to refer to your bylaws for guidance. We can help you draw up your own bylaws based on the structure and needs of your business.

Step 5: Apply for an Employer Identification Number

The IRS issues an Employer Identification Number (EIN) to every business that owes Federal income and employment taxes, just like you use your social security number to pay personal income tax. 

When your business is incorporated, you can head to the IRS website and apply for your EIN. You won’t just need it to file an S corporation election. It’s required for simple business activities such as opening a bank account, securing a credit card, and registering for state taxes, licenses, and permits.

Step 6: File Form 2553 for S Corporation Election

Now that you have built an official business entity, you can file your S corporation election to the IRS. This consists of a simple form called Form 2553, which needs to be signed by all the S corporation shareholders. 

To receive S corp status in the current tax year, you’ll need to file Form 2553 within two months and 15 days of the beginning of that year. LLCs that miss the deadline should file Form 8832, another IRS form, at the same time as Form 2553. Filing past the deadline requires a sound reason you missed it and could entail penalties.

For S corp status in the coming tax year, you can file Form 2553 anytime. When the IRS receives your form, you can expect a response within 60 days.[9]

Nebraska S Corp vs. Nebraska LLC

Advantages of Starting an LLC in Nebraska

Limited liability companies (LLCs) have pass-through taxation, just like S corps. So what’s the difference? For one, Nebraska LLCs have pass-through taxation by default, so you won’t have to file for S corp status and maintain payroll to have pass-through taxation. 

Additionally, LLCs can have an infinite number of members, which can include partnerships, corporations, and non-U.S. citizens. This way, you won’t have to worry about S corp limitations when building your business.

Disadvantages of Starting an LLC in Nebraska

On the other hand, LLCs are simple for tax purposes, but sometimes a more sophisticated approach can provide tax savings. If you make substantial profits as an LLC, all your income will still be subject to self-employment tax. And depending on your tax bracket, this can add up.

Advantages of forming an S Corporation in Nebraska

S corp status allows for a specific tax treatment that favors shareholders of highly profitable businesses. After shareholders receive “reasonable” compensation for their work in the company, they can take distributions independent of self-employment tax. LLCs don’t have this option.

Disadvantages of forming an S Corporation in Nebraska

An S corporation election limits the partnerships you can take on because of the disqualifying shareholders and the fact that they are capped at 100. And depending on the business you’re running, S corp status could become a significant administrative burden for little to no payoff from the tax treatment.

Ready to File for S Corp Status in Nebraska?

You may be excited about the possible tax savings for your small business from switching to S corp status. Thankfully, you can reap all those benefits without the pains or risks of onerous paperwork.

Swyft Filings will set up your S corporation in Nebraska with no hassle on your part. We’ll get the process done correctly, ensuring you meet all the S corp limitations and deadlines and avoiding costly mistakes and setbacks.

During the time you would spend on paperwork, you and your fellow business owners will do what only you can: meet customers and grow your business.

Frequently Asked Questions

What is an S Corporation in Nebraska?

An S corporation is a business entity eligible to be taxed as a corporation that has filed for S corp status with the IRS.

Does Nebraska recognize S corporations?

Nebraska recognizes S corporations in accordance with the Federal tax code.

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

The IRS expects to return S corporation elections within 60 days.

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

An S corp is an LLC or C corp that has elected S corp status with the IRS under the Internal Revenue Code. An LLC is a business formed under the limited liability company business structure.

What are the requirements for an S corporation in Nebraska?

S corporations are limited in their shareholders, the classes of stock they can issue, and in other ways.

Are taxes for LLCs and S corps the same?

LLCs and S corps both have pass-through taxation, but S corps can allocate distributions to shareholders after they are reasonably compensated.

What is the S corp tax rate?

Because they are pass-through entities, S corp income tax rates vary based on the personal income taxes of each shareholder.

How do I dissolve an S corporation in Nebraska?

You can file articles of dissolution online with the Nebraska Secretary of State for a $30 filing fee.

Bibliography

1. Nebraska Department of Revenue. “Business Income Tax FAQs.” Accessed March 23, 2023.

2. Nebraska Legislature. “Nebraska Revised Statute 21-303.” Accessed March 23, 2023.

3. Internal Revenue Service. “S Corporations.” Accessed March 23, 2023.

4. Nebraska Secretary of State. “Name Procedures.” Accessed March 24, 2023.

5. Nebraska Legislature. “Nebraska Revised Statute 21-230.” Accessed March 24, 2023.

6. Nebraska Legislature. “Nebraska Revised Statute 21-220.” Accessed March 24, 2023.

7. Nebraska Secretary of State. “Forms and Fee Information.” Accessed March 24, 2023.

8. Nebraska Legislature. “Nebraska Revised Statute 21-193.” Accessed March 24, 2023.

9. Internal Revenue Service. “Instructions for Form 2553 (12/2020).” Accessed March 24, 2023.