How to Start an S Corporation in Oklahoma

Taxes are some of the costliest expenses for many small business owners. Luckily, paying attention to your tax designation can help save you considerably come tax time. Starting an S corporation in Oklahoma can help reduce the amount you owe to the IRS. Electing this particular tax classification doesn’t have to be difficult either.

S Corporations in Oklahoma: Key Points

• An Oklahoma LLC or C corp can elect S corporation tax status through the IRS.

• S corp status results in significant tax savings, including lower self-employment tax and pass-through taxation.

• S corp status is ideal for small businesses, but only some companies are eligible for this tax designation.

What Is an S Corporation?

An S corporation is an IRS tax classification, not a formal business entity. This designation determines the tax treatment of your company. The S stands for a subchapter within the IRS tax code. Companies that elect S corp status save on self-employment taxes and avoid double taxation.

Eligible Oklahoma companies may elect S corp status. To qualify, you must own a limited liability company (LLC) or C corporation..

Tax Considerations for an S Corporation in Oklahoma

When your company has S corp status, each shareholder reports the company’s income and losses on their tax return. This results in paying taxes at generally lower individual tax rates. S corp tax treatment also avoids double taxation, which refers to paying income tax on corporate and personal tax returns. Bypassing the corporate tax rate results in paying lower self-employment taxes.

S corporation tax treatment is ideal for small business owners who want to withdraw money from their business for personal use or take distributions with their salaries. You can file for S corp status using IRS Form 2553, Election by a Small Business Corporation.[1]

Oklahoma Tax Treatment of S Corporations

S corps in Oklahoma benefit from tax savings and personal asset protection. LLC owners that file for S corp status can also significantly reduce their self-employment tax.

Oklahoma Franchise Tax for S Corporations

According to Oklahoma state law, S corporations must pay a franchise (excise) tax. The tax is levied and assessed “at the rate of $1.25 per $1 million or fraction thereof on the amount of capital allocated or employed in Oklahoma.” All subchapter S small businesses must file Form 512-S and pay any taxes due.[2]

Pass-Through Taxation

Companies with pass-through taxation don’t pay taxes as a business entity. Instead, the company’s income passes through to company owners, who then pay personal income tax on their share of company earnings.

C corps and LLCs without S corp status must pay corporate taxes on company revenue. The owners then experience double taxation when they’re taxed a second time on stocks and distributions sold.

Requirements for Forming an S Corporation in Oklahoma

While many small businesses can file for S corp status, not all companies qualify to form an S corporation. These include banks and credit unions.

Before applying, remember that S corporation shareholders and owners are considered employees. This means that everyone must be paid a reasonable salary via payroll.

A limited liability company and a C corporation in Oklahoma can apply for S corporation status if the following IRS criteria are met:

• Be an eligible domestic LLC or corporation

• Shareholders (individuals, estates, and certain trusts) must be U.S. citizens or resident aliens

• Company must make less than 95% of income from exports

• Company has no more than 100 shareholders

• Company only has one class of stock

• Shareholders must consent to the tax designation status change

You risk losing your S corp status if your company violates any of these rules. Considering the intricacies of maintaining an S corp, expert assistance can help. Consider using our online filing service to avoid costly mistakes.

How to File as an S Corp in Oklahoma in 6 Steps

Before you can gain S corp status, you must form an LLC or C corporation in Oklahoma.

Step 1: Choose a Business Name

Selecting the perfect business name is your first step in forming an S corporation in Oklahoma. Choosing a clear, easy-to-remember name that describes your products or services is just one aspect. You must also follow these regulations.

• You must include “LLC” or “limited liability company”

• You can’t use words that could confuse or mislead people, such as inferring that your business is a government agency

• You must have written approval if you use financial terms like “savings” and “loan”

• Your company’s name must be distinguishable from other Oklahoma business names

Once you’ve selected the ideal business name, check that the name is not already in use by another Oklahoma business. Our free business name search makes the process quick and easy.

If you aren’t ready to form your business, reserve the name with the Oklahoma Secretary of State.[3] Name reservations can be made 60 days before legal business entity formation for $10.[4]

To further protect your business name, consider trademarking. File for a federal name trademark and protect your brand nationwide with the United States Patent and Trademark Office (USPTO).[5] You can also apply for a state trademark with the Oklahoma Secretary of State. However, this only provides name and brand protection within Oklahoma.[6] 

To ensure you have a website with your company name, reserve your URL.

Step 2: Appoint Directors and a Registered Agent

Oklahoma law requires that you have at least one director for your business. The person must be listed in your Articles of Organization, and no residency requirement stipulates where the director must reside. Your board of directors may consist of S corporation shareholders and S corp directors. Directors keep your business on track.

All Oklahoma businesses must have a registered agent. A registered agent is a person or organization authorized to receive official documents for your company. These documents include state and local government correspondence and legal notices.

While you can serve as your own registered agent, doing so isn’t advisable. An Oklahoma registered agent must have a physical address in the state and maintain business hours from 8 am to 5 pm, which is difficult if you need to leave the premises while running your business. Privacy is also a concern; your address will be part of the public record.

Many Oklahoma small business owners find hiring a third-party registered agent service the most practical and safest option. We offer registered agent service for all 50 states.

Step 3: File Articles of Organization (Certificate of Formation)

The Articles of Organization, sometimes called Certificate of Formation, officially register your business as an LLC in Oklahoma.

You must file your Articles of Organization with the Oklahoma Secretary of State and pay a $100 filing fee. You may file online, or by mail using Form 0074.[7], [8]

You must include the following information in the Articles of Organization:

• Company name

• Principal place of business

• Email address of company’s primary contact

• Registered agent name and address

• How long the company will remain active (perpetual or for a set number of years)

• Governing authority type

• Signature of person filing the document (the individual may or may not be a member of the LLC)

To remain compliant, Oklahoma LLCs must file an annual report known as an annual certificate and pay a $25 fee. The filing must be done each year by the anniversary of the LLC’s formation. You can file online or via mail.[9]

You must also pay an annual franchise tax.

Step 4: Create an S Corp Operating Agreement

Oklahoma law does not require an Operating Agreement for your LLC, but drafting one is highly recommended. An operating agreement gives all business owners clear direction regarding operations, including bylaws.

Here is what to include in your LLC’s operating agreement:

• Member names and their ownership percentages

• Rights and responsibilities of members

• Member shares of profits and losses

• Management structure

• Process for amendments

• Rules and procedures for buying in and selling out

• How assets are to be distributed if the company dissolves

Step 5: Apply for an Employer Identification Number

Every LLC must obtain an Employer Identification Number (EIN) from the IRS. An EIN is a nine-digit number, like a social security number, for your business. The EIN allows the IRS to identify your business and track income tax and employment taxes.

You can only open a bank account, get a company credit card, hire employees, or collect revenue once you obtain an EIN.

To apply for a free EIN, go to the IRS website.[10] Or, if you prefer less hassle, we can obtain your EIN at no cost.

Step 6: File Form 2553 for S Corporation Election

The final and most critical step is to file Form 2553, Election by a Small Business Corporation.[11] This step allows you to make an election for S corp status as a business entity.

Form 2553 for S corporation election requires the following information:

• EIN

• Date of incorporation

• State of incorporation

• S corporation election date

• Tax year selected

• Whether family members are considered one shareholder

• Contact information

• Names and addresses of shareholders

• Percentage of stock owned by individual shareholders

• Fiscal year

• Signatures

You must file Form 2553 within 75 days of starting your company, anytime the year before the selected tax year, or less than 75 days after the start of the chosen tax year. If you miss the deadline for filing Form 2553, you must also file Form 8832, Entity Classification Election, opting to be taxed as a corporation.[12]

Oklahoma S Corp vs. Oklahoma LLC

S corporations have advantages and disadvantages, so S corp status isn’t ideal for every business. You may discover that sticking to a limited liability company is a better option for tax purposes.

We’ve summed up the pros and cons of an S corporation election versus remaining an Oklahoma LLC to help you decide if S corp tax treatment is right for your company.

Advantages of Starting an LLC in Oklahoma

A limited liability company is easy to set up and maintain and offers flexible management options. If your company is sued or amasses non-repayable debt, your assets can’t be tapped for funds.

Additionally, unlike C corps, which experience double taxation, LLCs benefit from pass-through taxation. Company profits are taxed on members’ personal tax returns, making taxes less costly and simplified.

Ready to start your entrepreneurial journey and file your LLC? We make the process quick and easy.

Disadvantages of Starting an LLC in Oklahoma

There are costs associated with starting an LLC. These include $100 to file Articles of Organization and $25 for the annual statement. LLCs must also have a registered agent.

Additionally, LLCs are subject to self-employment tax. Profits are passed through to the personal tax returns of shareholders. Self-employment and personal income tax must be paid on those profits.

Advantages of Forming an S Corporation in Oklahoma

The main advantage of S corps over LLCs is their unique tax treatment. Both LLCs and S corporations benefit from pass-through taxation, but S corporations enjoy even more tax savings by only paying self-employment and personal income tax on a reasonable salary rather than the entire amount like LLCs. 

Any remaining profits aren’t subject to self-employment taxes and can be withdrawn as non-taxed distributions.

Disadvantages of Forming an S Corporation in Oklahoma

S corporations have restrictions on eligibility. There is a limit of 100 shareholders. And only U.S. citizens and certain estates and trusts qualify as shareholders. S corporations can also only offer one class of stock. Because there are many tax benefits to S corps status, they tend to be watched more closely for compliance by the IRS than other business structures.

Get the Legal Benefits of an LLC With the Tax Benefits of an S Corp

While a limited liability company offers many benefits, it can pay to consider going a step further with an S corporation. By electing this tax structure, you combine the legal advantages of an LLC, including privacy protection, with the attractive tax advantages offered by an S corporation. This can result in substantial savings.

Ready to File for S Corp Status in Oklahoma?

Suppose you determine that filing for an S corporation in Oklahoma is right for you and your small business. In that case, we can file the paperwork for you. Business owners who use our services find the process quick and easy. We can also explain the pros and cons of S corp status, including S corp limitations.

Frequently Asked Questions

What is an S Corporation in Oklahoma?

An S corporation is a business that has chosen a specific IRS tax election. Companies eligible for this tax designation avoid double taxation. Company shareholders report company income and losses on their personal tax returns, resulting in revenue and losses being assessed at lower individual tax rates.

Does Oklahoma recognize S corporations?

Yes, Oklahoma recognizes S corporations that abide by the rules associated with this tax designation.

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

According to the IRS, a company should receive a determination as to whether S corp status is approved 60 days after filing Form 2553.

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

Both S corps and LLCs feature flow-through income and losses on personal tax returns, but S corps offer even more tax savings. S corp shareholders pay personal income and self-employment tax on a reasonable salary. Remaining profits aren’t subject to self-employment taxes and can be withdrawn as distributions.

What are the requirements for an S corporation in Oklahoma?

To qualify as an S corporation in Oklahoma, a company must:

• Be an eligible domestic LLC or corporation

• Ensure shareholders are U.S. citizens or resident aliens and are either individuals, estates, or certain trusts

• Have no more than 100 shareholders

• Offer only one class of stock

• Make less than 95% of its income from exports

Are taxes for LLCs and S corps the same?

Taxes for LLCs and S corps are similar but not the same. S corporations generally pay less in taxes than LLCs. LLC owners pay self-employment and personal income tax on their entire earnings. S corporation owners only pay taxes on a reasonable salary. The remaining profits are distributed with no additional tax.

What is an S corp tax rate?

The S corp tax rate is determined from personal tax rates, which currently run between 10% and 37%.[13]

How do I dissolve an S corporation in Oklahoma?

To dissolve your S corporation, complete the Articles of Dissolution form and send it via mail or fill it out online. The filing fee for dissolution is $50.[14]

Bibliography

1. Internal Revenue Service. “About Form 2553, Election by a Small Business Corporation.”  Accessed May 2, 2023.

2. Oklahoma Tax Commission. “2022 Oklahoma Small Business Corporation Income and Franchise Tax Forms and Instructions.” Accessed May 2, 2023.

3. Oklahoma Secretary of State. “Oklahoma Secretary of State Business Services.” Accessed May 2, 2023.

4. Oklahoma.gov. “How to Start a Business in Oklahoma.” Accessed May 2, 2023.

5. United States Patent and Trademark Office. “Trademark Basics.” Accessed May 2, 2023.

6. Oklahoma Secretary of State. “Trademark Filing.” Accessed May 2, 2023.

7. Oklahoma Secretary of State. “Business Services.” Accessed May 3, 2023.

8. Oklahoma Secretary of State. “Procedures for Organizing an Oklahoma Limited Liability company.” Accessed May 3, 2023.

9. Oklahoma Secretary of State. Limited Liability Company Annual Certificate. Accessed May 3, 2023.

10. Internal Revenue Service. “Apply for an Employer Identification Number (EIN) Online.” Accessed May 3, 2023.

11. Internal Revenue Service. “About Form 2553, Election by a Small Business Corporation.” Accessed May 3, 2023.

12. Internal Revenue Service. “Form 8832.” Accessed May 3, 2023.

13. Internal Revenue Service. “IRS provides tax inflation adjustments for tax year 2022.” Accessed May 3, 2023.

14. Oklahoma Secretary of State. “Articles of Dissolution, Oklahoma Limited Liability Company.” Accessed May 3, 2023.