Start an S Corporation in Oregon

Every Oregon entrepreneur should consider filing for S corp status with the Internal Revenue Service (IRS). It could save you and your small business money. This article covers the basics of S corp status and helps you understand if your Oregon business entity should become an S corporation.

S Corporation in Oregon: Key Takeaways

• When a qualifying small business decides to take advantage of S corp status, it files Form 2553 to the IRS, which is called an S corp election.

• S corporation shareholders pay Oregon income tax on their personal tax returns.

• The Oregon excise tax, or franchise tax, is $150 per year at minimum. The state excise tax on businesses with Oregon taxable income of $1 million or less is 6.6% and increases based on taxable income from there.

What is an S Corporation?

An S corporation is a business entity approved by the IRS to be taxed with S corp status. An Oregon limited liability company (LLC) or C corporation is eligible for S corp status if it meets specific requirements. When a business entity files for S corp status, it maintains its business structure.

When a qualifying small business decides to take advantage of S corp status, it files Form 2553 to the IRS, which is called an S corp election. This notifies the IRS that the business entity wants to “elect,” or choose, to be taxed as an S corporation.

This chart can help you understand how S corp status relates to your business entity.

Tax Considerations for an S Corporation in Oregon

If you file for S corp status, it will be for tax reasons. So here’s what your small business can expect for tax treatment as an Oregon S corp:

Oregon Tax Treatment of S Corporations

Oregon S corps are subject to the same taxation as any Oregon business in many ways. They must pay sales and other business taxes for the specific goods they sell. Mostly, S corporation shareholders pay Oregon income tax on their personal tax returns.

The amount that S corporation shareholders are taxed on depends on their resident or non-resident status and their share of ownership in the S corp. Filing requirements also differ whether or not you’re an Oregon resident.

Your Oregon S corporation tax returns are due to the Oregon Department of Revenue on the 15th day of the month after the month your Federal return is due. This applies to Federal tax returns that get granted extensions.

Oregon Excise Tax for S Corporations

The Oregon excise tax, or franchise tax, is $150 per year at minimum. The state excise tax on businesses with Oregon taxable income of $1 million or less is 6.6% and increases based on taxable income from there.[1] S corp status gets you out of Federal corporate tax, but not this.

Pass-Through Taxation

At the Federal level, S corporations are taxed as “pass-through” entities. Similar to an LLC, sole proprietorship, or partnership, S corp income and losses “pass-through” the business entity to the personal tax returns of the S corporation shareholders. 

This way, S corporations avoid “double taxation” that C corporations have to pay because they are exempt from Federal corporate income tax.

Potential for Lowering Your Self-Employment Tax Liability

A 15.3% self-employment tax for Medicare and social security applies to your income as an LLC member or S corporation shareholder. But S corporation status allows shareholders to pay themselves a “reasonable” salary for their work and then take distributions not subject to self-employment tax.

Requirements for Forming an S Corporation in Oregon

Only some Oregon corporations can become an S corporations. These are the filing requirements you must meet to qualify for S corp status:[2]

• The S corporation must be “domestic” (incorporated in the United States).

• There must be 100 or fewer S corporation shareholders. 

• Partnerships, corporations, and non-resident aliens cannot be shareholders. (Individuals, estates, and “certain trusts” are considered “allowable shareholders.”)

• “Certain financial institutions, insurance companies, and domestic, international sales corporations” are ineligible for S corp status.

• S corporations can issue only one class of stock.

A limited liability company or C corporation can elect S corp status with the IRS provided it meets these filing requirements. Let Swyft Filings handle your S corp election to be sure you meet these requirements and only file your election once.

Filing as an S Corp in Oregon

To start an S corporation in Oregon, follow these steps. If you have an existing business and you want to elect S corp status, skip to step 6.

Step 1: Choose a Business Name

Your S corporation in Oregon needs a unique business name. Start with a business name search from the Oregon Secretary of State, or use our free name search. Ensure your name is compatible with an available domain and social media handle that you can use across platforms.

If you’re not yet ready to incorporate but have found an available name, apply for a name reservation that lasts 120 days using this form. The filing fee is $100, and you can only file by mail.

Trademarking is a crucial way to protect the use of your name. Check that your name isn’t already trademarked in Oregon or at the national level, and if it isn’t, consider registering your own trademark to avoid legal troubles down the line. 

Step 2: Appoint Directors and a Registered Agent

Your S corporation is required to have a board of directors which needs to meet annually.[4] To form your board, S corporation shareholders—the company’s owners, which could be just you[5]—need to appoint at least one director[6]—which could also be you—to take responsibility for the company’s operations.

S corp directors typically hire officers to run the business on the ground. If you are an S corp of one, then you are a shareholder who owns 100% of the company, the president of the board of directors, and the company’s chief executive officer.

By contrast, LLCs have a simpler structure: they are owned by members who may hire managers to run the business.

Standard S Corp Organizational Structure

Finding An Oregon Registered Agent

Before you form your S corporation, you’ll need an Oregon registered agent. This office receives critical legal documents on behalf of your business. Registered agents for Oregon S corporations need to have a physical street address in Oregon.[7]

An officer of your company can be your registered agent, but a registered agent service is the most reliable way to protect your business from legal disaster. If your business gets served with a lawsuit, you’ll want the files to be delivered somewhere discreet, and you’ll want whoever handles those documents to be an experienced professional.

While Swyft Filings does the paperwork for your S corp, we can also serve as your Oregon registered agent. We store your documents online with top-notch security and provide experienced, reliable support to your business. 

Step 3: File Articles of Incorporation

Articles of Incorporation are the documents you file with the Oregon Secretary of State to register your business officially. You can mail the Articles of Incorporation or file them online at the Oregon Business Registry. The filing fee is $100.[8]

The Articles of Incorporation will state the business name and the names and addresses of its registered agent, incorporators, initial president and secretary (if required by your bank), and at least one “individual with direct knowledge” of the business, whether a director, controlling shareholder, or an authorized representative of the new corporation.[8]

Once filed, these names and addresses are a matter of public record.[9]

So You’ve Filed Your Articles of Incorporation. Then What?

Step 4: Create S Corp Bylaws

Business owners should agree on and maintain some governing document that outlines essential procedures for their business. For LLCs, this is called an operating agreement. When it comes to corporations, they’re called bylaws, and they’re required for Oregon corporations.

Swyft Filings can help you draw up some robust bylaws. Generally, bylaws outline where and when the board of directors will meet, hiring practices for officers and appointment procedures for directors, how and when the company will dissolve, who owns the company, how to allocate distributions, and other vital details about your business.

Step 5: Apply for an Employer Identification Number

Your Employer Identification Number, or EIN, is also called your Federal Tax ID. Issued by the IRS, businesses have to use their EIN for several critical business operations, from opening a bank account to registering for state licenses and permits, as well as employment taxes and state income tax.[13]

You can get your EIN from the Internal Revenue Service website for free. Swyft Filings can also do it for you.

Step 6: File Form 2553 for S Corporation Election

This step is the one that makes you an S corporation. The S corporation election Form 2553 is your business entity’s official request to the IRS for S corp status. The form verifies that you qualify to be an S corporation.

When Should You File Form 2553?[14]

If you’re an LLC that’s missed your deadline, you must file Form 8832 at the same time you file Form 2553.

Swyft Filings can help you file your S corporation election quickly and protect you from costly mistakes. 

Oregon S Corp vs. Oregon LLC

Now you know what it takes to bring an S corporation into existence. But is it worth the hassle? That will depend on the business in question. Below we compare an S corporation with an LLC that hasn’t chosen to be taxed as an S corp.

Advantages of Starting an LLC in Oregon

A limited liability company (LLC) is a lean, mean business machine.

• LLCs are flexible to manage. 

• They require little paperwork or oversight.

• Members have pass-through taxation and personal asset protection.

Disadvantages of Starting an LLC in Oregon

LLCs can make the ownership transfer a hassle because their existence depends on individual members rather than shareholders. They are also limited in their ability to raise capital, and they can’t go public. 

Additionally, even entrepreneurs making money hand over fist will owe self-employment tax on all their distributions. This simple tax treatment works for many business owners, but sometimes S corp status can unlock an advantage.

Advantages of forming an S Corporation in Oregon

Because S corps are a special tax status, you’d form one for tax purposes. You’re likely to see a tax advantage from S corp status if:

• Your business is highly profitable (you’re drawing more than “reasonable” compensation for the labor you’re putting into the business).

• You don’t want to put that profit back into the business.

As an S corp shareholder, you can pay yourself a “reasonable” salary and avoid self-employment tax on additional distributions. This is an important reason to form an S corp, but it doesn’t apply to every business.

Disadvantages of forming an S Corporation in Oregon

The Oregon S corp limitations are simple but often a dealbreaker for entrepreneurs.

• They require significant paperwork and put you at greater risk of audit

• You have to run payroll, a considerable expense for small businesses

• You are strictly limited in the number of shareholders and who can invest

Ready to File for S Corp Status in Oregon?

Starting an S corporation in Oregon is an exciting but complicated process. Getting caught up in the paperwork—or worse, having to re-file forms or get stuck on hold with government offices—can distract a business owner from building their small business.

Luckily professionals are standing by to take this off your hands and make sure things get done the right way the first time. Take advantage of Swyft Filing’s S corp filing service to get back to the important work—finding and serving your customers the best you can. We’re fast, reliable, affordable, and experienced.

FAQs

What is an S Corporation in Oregon?

An Oregon S corporation is an LLC or C corporation based in Oregon that files Form 2553 to the IRS, receiving S corp tax status.

Does Oregon recognize S corporations?

Oregon acknowledges S corporations and taxes them accordingly.

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

The IRS says that it will let you know if your S corporation election is accepted within 60 days of filing the form.[14]

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

S corp is a tax status; LLC is a business structure. LLCs and S corps both receive pass-through tax treatment from the IRS, but they are taxed differently.

What are the requirements for an S corporation in Oregon?

S corps must issue only one class of stock, have 100 or fewer shareholders, and are limited in who those shareholders can be, among other requirements. S corps must File Form 2553 to the IRS to receive S corp status. 

Are taxes for LLCs and S corps the same?

LLCs and S corps are taxed slightly differently, though they both are generally pass-through entities.

What is the S corp tax rate?

Oregon S corps pay excise tax to the state of Oregon, that varies based on their taxable income. Federal income taxes for S corps are typically paid by shareholders, which would change based on the portion of shares they own and their personal income tax situation.

How do I dissolve an S corporation in Oregon?

S corps should follow the dissolution procedure outlined in their bylaws and then file articles of dissolution with the Oregon secretary of state. The filing fee is $100.

Bibliography:

1. Oregon Department of Revenue. “Corporation Excise Tax and Income Tax.” Accessed February 14, 2023.

2.  Internal Revenue Service. “S Corporations.” Accessed February 14, 2023.

3.  Oregon Secretary of State. “Name Availability.” Accessed February 14, 2023.

4.  Oregon Secretary of State. “Oregon Business Corporation Requirements.” Accessed February 14, 2023.

5.  Oregon Secretary of State. “Business Types.” Accessed February 14, 2023.

6.  Oregon Legislature. “Chapter 60—Private Corporations.” Accessed February 14, 2023.

7. Oregon Secretary of State. “Registered Agents and Service of Process.” Accessed February 14, 2023.

8. Oregon Secretary of State. “Articles of Incorporation—Business/Professional.” Accessed February 14, 2023.”

9.  Oregon Secretary of State. “Oregon Business Corporation.” Accessed February 14, 2023.

10.  Oregon Secretary of State. “Business Registry Certificates.” Accessed February 14, 2023.

11.  Oregon Legislature. “Chapter 60—Private Corporations.” Accessed February 14, 2023.

12. Oregon Secretary of State. “Business Registry Fee Schedule.” Accessed February 14, 2023.

13. Oregon Department of Revenue. “Form OR-20-S Instructions Oregon S Corporation Tax.” Accessed February 14, 2023.

14. Internal Revenue Service. “Instructions for Form 2553 (12/2020).” Accessed February 14, 2023.