Form an Iowa S Corp

Starting an S corporation in Iowa could be a game-changer for your business, especially when it comes to managing taxes more efficiently. Opting for S corp status is a tax decision that allows businesses, including limited liability companies (LLCs), to enjoy significant tax savings. This is particularly beneficial in Iowa, where savvy tax planning can make a big difference.

For LLC owners, shifting to an S corp model can be a smart move. Typically, income from an LLC is subject to self-employment taxes, but if your business operates as an S corp, you can draw a salary for the work you do. The best part? You only pay self-employment taxes on that salary. Any additional profits you take home as dividends aren’t subject to these taxes, potentially keeping more money in your pocket.

This guide will examine how you can start an S corp in Iowa, exploring the tax benefits this status can offer and guiding you through the steps to make this change, all while helping ensure your business stays on the right side of tax laws.

S Corporation Requirements and Limitations

Although it has many positive aspects, declaring your company as an Iowa S Corp may not be the right decision for you. You need to understand the limitations, restrictions, and requirements of an S Corp and decide if it fits within the plans for your business. To take advantage of S Corp status, your company must:

• Be a domestic corporation or other eligible business
• Have only certain kinds of corporate shareholders, including individuals, estates, exempt organizations, and certain trusts, but not partnerships, corporations, or non-resident immigrants
• Have no more than 100 corporation shareholders
• Have no more than one class of stock
• Not be an ineligible corporation, such as an insurance company, international sales corporation, or a certain kind of financial institution

There are also timing requirements for filing for S Corp status for already existing Iowa corporations and LLCs. The IRS Form 2553 must be filed no more than 2 months and 15 days after the beginning of the tax year the election is to take effect. The other filing option is that it can be filed at any time during the tax year preceding the tax year it is to take effect.

What to know before creating an S Corporation in Iowa

You have to look carefully at the requirements of an S Corp before you decide to file form 2553. It’s important to file Form 2553 immediately when you first apply for an EIN because the IRS will automatically designate your business as a C Corporation if there’s no Form 2553 filing. Being designated as a C Corp tax filing status will require your company to file taxes at the corporate as well as the individual level. In other words, C Corp status opens you up to double taxation.

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

Both S Corp and C Corp are tax designations created by the IRS. The S Corp designation has tax advantages, but there are limitations on the class of stocks and stockholders, along with other restrictions. C Corp does not allow for pass-through taxation, but there are no restrictions on the issuance of stock in the company.

Can LLCs choose an S Corporation election?

Yes! There are benefits for an LLC to have S corporation status, above and beyond the pass-through taxation that LLCs already have. If you have an existing Iowa LLC, you should still change its tax status to an S Corp because there are still tax savings an LLC can take advantage of with an S Corp designation. Our LLC tax guide covers the topic in full.

How to Form an S Corporation in Iowa

If you’re ready to learn about filing as an S corporation in Iowa, we’ll walk you through it. First, we’ll show you how to form an LLC in Iowa and how to form a corporation in Iowa. Then we’ll explain how to file for S corp status as either an LLC or corporation.

S-Corp Election Steps for LLCs

For detailed formation steps, see our Iowa LLC formation guide.

• Step 1 – Choose a Business Name
• Step 2 – Appoint a Registered Agent in Iowa
• Step 3 – Choose Directors or Managers
• Step 4 – File Articles of Incorporation/Certificate of Organization with the Iowa Secretary of State

S-Corp Election Steps for Corporations

For detailed formation steps, see our Iowa Corporation formation guide.

• Step 1 – Name Your Iowa Corporation
• Step 2 – Appoint Directors
• Step 3 – Choose an Iowa Registered Agent
• Step 4 – File the Iowa Articles of Incorporation
• Step 5 – Create Corporate Bylaws
• Step 6 – Draft a Shareholder Agreement
• Step 7 – Issue Shares of Stock
• Step 8 – Apply for Necessary Business Permits or Licenses
• Step 9 – File for an EIN and Review Tax Requirements
• Step 10 – Submit Your Corporation’s First Report

File Form 2553 to Turn Business into an S Corporation

This simple but important task can be done when you request an Employer Identification Number (EIN) from the IRS. This number is sometimes also known as a federal tax identification number, or FEIN. Your EIN identifies your company to the IRS, and is typically also needed to open a business bank account.

You have to Form 2553 with the IRS to designate your company as an Iowa S Corporation. This task can be done when you obtain your EIN from the IRS, or you can have us obtain an EIN for you.

Once this form is filed, then you can take advantage of all of the benefits of having an Iowa S Corp. Note that if you start your business as an LLC, you first need to file Form 8832 to give your business corporation status, then you can file Form 2553 for S Corporation status. 

Weighing the pros and cons of creating an Iowa S Corporation

 Knowing that an S Corp tax designation isn’t for everyone, we want to point out the pros and cons of going down this road. This will better help you decide whether to make the designation with the IRS.

Pros

The positives about having an Iowa S Corporation are the following:

• You receive all of the personal asset protection that Iowa C corporations and LLCs offer.
• You avoid double taxation of business profits due to pass-through taxation and income.
• You are also allowed to be more flexible with income designation, which can ultimately save you more on income tax payments.

It’s pretty easy to file Form 2553 with the IRS to establish your S Corp status if you decide it’s the best course to take with your Iowa company.

Cons

Certain restrictions and requirements may lead you to decide that the restrictions of an S Corp aren’t the right fit for your company:

• There can be only one class of stock offered, so all stockholders are treated the same.
• There is a limited number of stocks that can be offered.
• There is more extensive IRS oversight.
• There are more stringent eligibility requirements.

Making the decision to use the S Corp designation is an important one and you may need the advice of a tax or legal professional to help you make the best choice.

S Corp Tax Calculator

The S Corporation tax calculator below lets you choose how much to withdraw from your business each year, and how much of it you will take as salary (with the rest being taken as a distribution.) It will then show you how much money you can save in taxes.

Disclaimer: The savings estimate provided by this tool is for informational purposes only and should not be considered financial, tax, or legal advice. Actual savings may vary depending on individual circumstances and other factors. We recommend consulting with a qualified tax or legal professional before making any decisions regarding your business entity. ZenBusiness, Inc. is not responsible for any actions taken based on the information provided by this tool. Use of this tool does not establish any client relationship with ZenBusiness, Inc.

Related articles:

• Create an Illinois S Corp
• Form a Series LLC in Iowa
• File an Indiana S Corp

Get help establishing a Iowa LLC with S corp tax election

Getting your business in the best position with an S Corp designation can seem overwhelming, but we are here to help. If you’re looking to start a business as an S Corporation, our S Corporation Service can give you the tools to do it quickly and accurately.

We also provide business start-up services where we can help you easily create your company and take advantage of the S Corp designation tax status during the process. Our team is just a few clicks away and is ready to help you put your new business in Iowa in the best possible position.