Start an S Corporation in West Virginia

When you run a small business, taxes can quickly eat into profits. If you select S corp status for your business entity, you can reduce the amount you pay the IRS. This guide will walk you through setting up your S Corporation in West Virginia.

S Corporation in West Virginia: Key Takeaways

• West Virginia limited liability companies (LLC) and C corporations that become S corps avoid double taxation and benefit from reduced self-employment taxes.

• As of January 1, 2015, West Virginia phased out franchise tax for all corporations, including S corps.[2]

• When you adopt this tax designation, all S corporation shareholders are considered employees.

What Is an S Corporation?

An S corporation is not a formal business entity but an IRS tax designation. S corp status is adopted under Internal Revenue Service (IRS) tax code Subchapter S. West Virginia limited liability companies (LLC) and C corporations that become S corps avoid double taxation and benefit from reduced self-employment taxes.

Tax Considerations for an S Corporation in West Virginia

Choosing S corp status results in paying fewer business taxes. This occurs because the S corporation tax designation allows income and losses to pass through to company shareholders. Those shareholders pay their share of profits and losses on their personal income tax returns.

West Virginia Tax Treatment of S Corporations

Electing S corp status in West Virginia results in federal tax savings. Company shareholders pay significantly less in self-employment tax. Your personal assets are also protected. You must own an LLC or C corporation to qualify and file for S corp designation in West Virginia. You elect S corp status by filing IRS Form 2553[1].

West Virginia Franchise Tax for S Corporations

As of January 1, 2015, West Virginia phased out franchise tax for all corporations, including S corps.[2]

Pass-Through Taxation

Pass-through taxation results when a business’s shareholders pay most of the company’s taxes on their personal income tax returns. The company’s income “passes through” to shareholders, who pay taxes on their share of company earnings—paying a majority of company taxes at the personal level rather than the corporate level results in owing fewer taxes.

Those businesses that opt for S corp tax treatment also avoid double taxation. This refers to paying taxes twice, once on corporate revenue and again at a personal level when there are distributions or sales of stock.

Requirements for Forming an S Corporation in West Virginia

Not all businesses qualify for S corp status. Certain banks, thrifts, and some insurance companies, are not eligible. Neither are domestic international sales corporations.

When you adopt this tax designation, all S corporation shareholders are considered employees. Each member must receive a reasonable salary for your company to acquire and maintain S corporation status. This requires that you run payroll. To form an S corporation in West Virginia, you must also adhere to the following IRS requirements for S corporations [3].

• Be a domestic corporation (Limited liability company (LLC) or Corporation) to be eligible to file.

• Company only has allowable shareholders (individuals, estates, and certain trusts).

• Company shareholders are U.S. citizens or resident aliens.

• Company has no more than 100 shareholders.

• Company only has one class of stock.

• Shareholders have consented to file as an S corp.

In addition to filing a federal tax return, all corporations that elect to be taxed under IRS subchapter S that derive income from activities, property, or other income generation sources in West Virginia must also file a state income tax return.[4]

How to File as an S Corp in West Virginia in 6 Steps

Before filing as an S corporation in Virginia, you must form an LLC or a C corporation. Here are the steps to forming a business structure in West Virginia eligible for S corp status.

Step 1: Choose a Business Name

Before setting up your S corporation in West Virginia, you must choose a business name. Select a company name that accurately describes your products or services. West Virginia state law requires that the requested name be distinguishable from any other name registered in the state.

When registering an LLC, you must include in the company name Limited Liability Partnership, LLP or L.L.P.[5]

Additional naming requirements include:

• Company name cannot contain words or phrases implying a purpose other than what the business was organized for.

• The terms banking and insurance cannot be included in the name if the business doesn’t perform such services.

• Engineer and engineering can only be used if the business practices professional engineering and one of the principals is a professional engineer registered in West Virginia.

• Use of the term 911 is not allowed.

Check that your business name isn’t already used in West Virginia before attempting name reservation by calling the Secretary of State Business Division at 1-866-767-8683. You can also conduct an online business name search using the Business Organization Search system.[6] 

Once you’ve determined the business name is available, file an application for name reservation and pay $15.[7]

It’s a good idea to reserve your business name URL so you can quickly set up your company website when you’re ready. Also, consider protecting your business name by filing for a name trademark with the United States Patent and Trademark Office (USPTO) [8]. You can also apply with the state for a trademark.[9] State trademarking is less expensive and quicker, while federal trademarking offers greater protection.

Step 2: Appoint Directors and a Registered Agent

West Virginia law requires that corporations have a board of directors consisting of one or more individuals to oversee company operations. You must specify the number of directors in the company’s Articles of Incorporation or bylaws.[10]

Your company also needs a Registered Agent. Such an individual or organization is authorized to receive official correspondence for your business. Company members like S corp directors or shareholders can fill this role, but that is generally not feasible. 

A West Virginia Registered Agent must have a physical address in the state and be available Monday through Friday, 9 am to 5 pm.

When you act as your own Registered Agent, your privacy is at risk, as your address becomes a matter of public record. Many business owners find the safest and most convenient option is to hire an outside Registered Agent service like Swyft Filings.

Step 3: File Articles of Organization

West Virginia LLCs are formed by filing Articles of Organization, also known as a Certificate of Formation, with the Secretary of State by mail or online. The filing fee is $100 and waived for Veteran-owed organizations.[11]  New companies must also register with the State Tax Department.[12]

The Certificate of Organization form requires the following information:

• Limited liability company name

• Principal office address

• Registered Agent address

• Company email address

• Company website address

• Number of businesses owned and operated in the state by organizer(s)

• Names and addresses of organizer(s)

• Planned duration of company

• If the company will be member-managed or manager-managed

• Purpose of company

• Name and signature of organizer

• Purpose of the company

• If company is Veteran-owned

• Signatures

Each year after forming your company, you must file an annual report with the Secretary of State and pay a $25 fee. Complete your filing between January 1 and July 1.

Step 4: Create an S Corp Operating Agreement

The State of West Virginia does not require an operating agreement, but it’s a good idea for business owners to create one. An S Corp Operating Agreement stipulates the operational logistics of the company, including the duties of directors and members and the bylaws. How you will handle money is also spelled out in this document.

S corp operating agreements should include:

• Names of shareholders and members

• Duties of members and managers

• Member financial interests

• How you distribute profits amongst members

• How you cast votes

• If you can transfer LLC interests to third parties

• How to dissolve your LLC

Step 5: Apply for an Employer Identification Number

Before electing S corp status in West Virginia, you must obtain an employer identification number (EIN) from the IRS. EINs serve as social security numbers for businesses. The IRS uses this number to identify your business and track income tax and employment taxes. You must also have an EIN to open a business bank account.

Apply for an EIN on the IRS website[13]. Swyft Filings can get you your EIN for free by dealing with the IRS for you.

Step 6: File Form 2553 for S Corporation Election

The final and most critical step in the S corp status process is to file Form 2553 with the IRS.[14] With this form; you choose the S corporation election for your business entity.

Fill out form 2553 with the following information:

• Company EIN

• Incorporation date

• State of incorporation

• Election date

• Tax year chosen

• If family members will be treated as one shareholder

• Shareholder names and addresses

• Percentage of stock owned by shareholders

• Selection of fiscal year

• Signatures

The IRS requires that you file form 2553 within 75 days of starting an LLC or C corporation, or anytime in the year before the tax year of the S corporation election, or no more than 75 days following the beginning of the tax year when the S corp status tax designation is to take effect.

If you don’t file Form 2553 in time, to obtain S corp status and be taxed as an S corporation, you also need to file Form 8832, Entity Classification Election.[15]

West Virginia S Corp vs. West Virginia LLC

Before forming an S corp, consider the advantages and disadvantages of doing so. It may be that forming an S corp is not in your company’s best interests regarding tax treatment. After studying the pros and cons, you could discover that remaining a limited liability company is the best choice for tax purposes.

Advantages of Starting an LLC in West Virginia

A West Virginia LLC is easy and cost-effective to form and maintain. LLCs don’t require annual meetings and minutes. There are also no limits on the number of members you can have in the company and the type of management structure you choose. On the other hand, S corporations are limited to no more than 100 shareholders and one class of stock.

Many small business owners choose to form a limited liability company to protect personal assets. With this business entity, your assets, such as your home and savings, can’t be taken to pay company debt.

A West Virginia LLC also has the benefit of pass-through taxation, referring to company profits and losses passing through to shareholders where they are taxed on personal tax returns. This setup avoids double taxation by paying corporate and personal income taxes on company earnings. If these benefits sound ideal for your business, you can set up your LLC today with Swyft Filings.

Disadvantages of Starting an LLC in West Virginia

It costs $100 to form a business in West Virginia. There is also a $15 name reservation fee. You must complete the accompanying forms with the Secretary of State and Tax Division. On an annual basis, you also need to file an annual report and pay $25. Additionally, you must hire a Registered Agent service for your business if a company member doesn’t take on that role.

Advantages of Forming an S Corporation in West Virginia

S corporation election offers you personal asset protection like an LLC. No one can access your personal assets to pay company debt.

Business owners choose S corp status in West Virginia mainly because of substantial tax advantages. In addition to benefiting from pass-through taxation and paying a majority of business tax at a lower personal level, S corp status also saves on self-employment tax. You only pay self-employment tax on a reasonable salary. The remaining business income profits are distributed to company shareholders without being taxed.

Disadvantages of forming an S Corporation in West Virginia

S corporations do have limitations. You can only have 100 shareholders and one class of stock. If you are planning for rapid growth, there may be better choices for your company than this tax treatment.

Only certain types of estates and trusts can qualify for this tax designation. S corp shareholders can only be U.S. citizens or resident aliens. If your business plans include overseas expansion, there are better options than this tax status.

With S corp status, you must also run payroll. The IRS is more likely to closely scrutinize your business for compliance as an S corp.

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

S corps offers the combined benefits of personal asset protection of LLCs with additional potentially lucrative tax advantages. You can expect to save a great deal of money in tax with an S corp thanks to reduced self-employment tax and pass-through taxation.

Ready to File for S Corp Status in West Virginia?

A business formation service is a wise option if you want expert guidance and assistance setting up your S corp. Swyft Filings’ business formation service features specialists who will quickly and efficiently set up your S corporation. Take the next step to receive potential tax benefits for your small business.

FAQs

What is an S Corporation in West Virginia?

S corp status is an IRS tax election, not a formal business entity. Certain eligible companies can elect S corp status. S corp election is characterized by pass-through taxation, where income and losses flow through the company shareholders’ individual tax returns. Shareholders then pay taxes on a reasonable salary. The result is paying significantly less self-employment tax.

Does West Virginia recognize S corporations?

Yes, West Virginia recognizes S corporations in good standing.

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

The IRS states that businesses that file for S corp status should receive a determination regarding if their election is approved 60 days after filing Form 2553.

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

LLCs and S corporations both feature pass-through income and writing off losses on personal tax returns, but S corps feature even more tax savings. S corp shareholders only have to pay self-employment tax based on a reasonable salary. The remaining profits are withdrawn as distributions, and zero self-employment tax is due on that portion.

What are the requirements for an S corporation in West Virginia?

For West Virginia companies to qualify for S corp status, the businesses must be LLCs or C Corps with no more than 100 shareholders and offer only one form of stock. Shareholders must all be U.S. citizens or resident aliens.

Are taxes for LLCs and S corps the same?

Regarding tax purposes, S corp and LLC taxes are not equal. Both business classifications feature pass-through taxation on shareholder personal income tax returns. S corp status offers more tax savings. Owners of S corporations only pay taxes on a reasonable salary, with the remainder of profits going untaxed. LLC shareholders must pay self-employment and personal income tax on the entire amount earned.

What is the S corp tax rate?

The IRS determines the S corporation tax rate from shareholder personal tax rates. Those rates are currently running between 10% to 37%.[16]

How do I dissolve an S corporation in West Virginia?

When you wish to dissolve your company in West Virginia, there are filing requirements with the Secretary of State’s Office and the State Tax Department. The fee to dissolve the business with the Secretary of State is $25.[17] To terminate your business with the State Tax Department, visit the Business Registration page.[18]

Bibliography:

1. Internal Revenue Service. “About Form 2553, Election by a Small Business Corporation.” Accessed February 20, 2023.

2. State of West Virginia. “West Virginia Business Franchise Tax.”  Accessed February 20, 2023.

3. Internal Revenue Service. “S Corporations.” Accessed February 20, 2023.

4. West Virginia Tax Division. “Pass Through Entity.” Accessed February 21, 2023.

5. State of West Virginia. “Name Availability and Requirements.” Accessed February 21, 2023.

6. West Virginia Secretary of State. “Business Organization Search.” Accessed February 21, 2023.

7. West Virginia Secretary of State. “Application for Name Reservation.” Accessed February 21, 2013.

8. United States Patent and Trademark Office. “Trademark basics.” Accessed February 21, 2023.

9. West Virginia Secretary of State. “West Virginia Application for Trademark or Service Mark.” Accessed February 21, 2023.

10. West Virginia Legislature. “Part 1. Board of Directors.” Accessed February 21, 2023.

11. West Virginia Secretary of State Business & Licensing Division. “West Virginia Articles of Organization of Limited Liability Company.” Accessed February 21, 2023.

12. West Virginia Tax Division. “Business Registration.” Accessed February 21, 2023.

13. Internal Revenue Service. “Apply for an Employer Identification Number (EIN) Online.” Accessed February 21, 2023.

14. Internal Revenue Service. “Form 2553.” Accessed February 21, 2023.

15. Internal Revenue Service. “Form 8832.” Accessed February 21, 2023.

16. Internal Revenue Service. “IRS provides tax inflation adjustments for tax year 2022.” Accessed February 21, 2023.

17. West Virginia Secretary of State. “Dissolve/Terminate a WV Business.” Accessed February 21, 2023.

18. West Virginia Tax Division. “Business Registration.” Accessed February 21, 2023.