Start a Nebraska S Corp

Requirements and Limitations for S Corporations

Before you can form an S Corporation, your business must meet certain requirements. It must:

• Be a domestic Nebraska corporation
• Have only allowable corporation shareholders (individuals, certain trusts, and estates but not partnerships, corporations, or non-resident alien shareholders)
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e., certain financial institutions, insurance companies, and domestic, international sales corporations).

Your business must maintain these requirements to continue its S Corp status. You should file Form 2553 within two months and 15 days of the start of the tax year or any time in the year before you want to be taxed as an S Corp. 

Weighing the pros and cons of creating an S Corporation

When choosing a business structure or tax treatment, you have many options. It’s important to think about how you want your income to be taxed. Also, consider how flexible you want your business ownership to be.

Pros of creating a Nebraska S Corp

Compared to unincorporated entities like the sole proprietorship or the general partnership, the S Corp provides more protection for your personal assets. Another pro of the S Corp is the pass-through taxation and tax-favorable characterization of business income. Finally, the S Corp allows for the cash method of accounting.

Cons of creating a Nebraska S Corp

The biggest con of the S Corp is the formation and maintenance expenses. Compared to the basic corporation or LLC, you have more paperwork to do. You’ll also face tighter tax qualification obligations and stock ownership restrictions. In addition, the IRS will likely subject your business to closer IRS scrutiny. Finally, the S Corp offers less flexibility in allocating income and losses.

What to know before creating an S Corporation in Nebraska

The first thing you should know is that the S Corp isn’t a business structure but rather a tax treatment. The second thing is that the IRS assigns a default tax treatment to each type of business entity, unless and until you file a non-default election such as S Corp status.

What is an S Corporation?

The S Corporation is a business that has elected S Corp taxation. S Corps use “pass-through” taxation. Rather than paying corporate income taxes, the business owners will only pay federal income tax on their individual returns. Unlike traditional “pass-through” entities like LLCs, partnerships, or sole proprietorships, the owners of S Corps pay employment taxes on their salary instead of the self-employment tax.

What’s the difference between an S Corporation and a C Corporation?

The default tax treatment for a Nebraska corporation is that of a C Corp, which involves double taxation. Double taxation means the corporation pays the corporate income tax and withholds employment taxes from its employees’ wages. If your corporation elects S Corp treatment instead, the business retains the same structure (shareholders, Board of Directors), but it no longer pays income taxes at the corporate level. Instead, the shareholders pay income and employment taxes on their individual returns based on their share of the corporation’s profits or losses. 

What are the requirements to create an S Corporation?

 
To create an S Corporation, you first need to register a business falling within the limitations identified above. Then, you have to file Form 2553 with the IRS within the appropriate timeframes. 

Can LLCs choose an S Corporation election?

Yes, LLCs can make an S Corp election. Making the S Corp election doesn’t change your business structure. Usually, the members of an LLC will make the S Corp election for tax purposes. An LLC isn’t ordinarily subject to corporate income tax. As a “pass-through entity,” the members of the LLC pay income taxes at the individual rate on business profits and losses.

However, they must also pay self-employment taxes on their income from the business. Instead, when an LLC’s members elect S Corp status, they must pay themselves a reasonable salary, and the S Corp (LLC) will collect employment taxes on that salary. If you have questions about taxes for LLCs, our business experts have written a page just for you. 

We can help

If you’ve decided that the S Corp is right for your business, we can help. See if our S Corp formation service is right for you. When you form your business with us, our business experts will be here to support you from formation to compliance. We’ll ensure you get all the paperwork and can even remind you of important deadlines.