File an Arkansas S Corp

What is an S Corporation, really?

S Corporations are qualified small businesses that have limited corporate shareholders or members but aren’t subject to corporate double taxation. 

What to know before creating an S Corporation in Arkansas

An S Corporation is a great way for many businesses to save on taxes, but it’s not the best option for every business. If you’re questioning what tax structure is right for you, consider contacting a tax or finance professional. Upon the formation of your limited liability company or corporation, the default tax election is that of a C corporation. If you do nothing to change it, this will be the structure by which you are taxed. 

Can LLCs choose an S Corp election?

Both limited liability companies and corporations can make an S Corp election. This should occur not more than 2 months and 15 days after the beginning of the tax year the election is meant to take effect — or at any time during the tax year preceding the tax year it is to take effect. 

What is the difference between an S Corporation and a C Corporation?

The biggest difference between C Corporations and S Corporations is taxes. C Corporations pay tax on their income as a business. Taxes are also paid by owners and employees on whatever income is received from the business. This is considered “double taxation.” 

An S Corporation doesn’t pay taxes as a business. Instead, taxes are paid on the owners’ personal income tax return. Being taxed directly at the personal income tax level is called “pass-through taxation,” and is one of the primary benefits of an S Corp. An S Corporation may still have to pay income tax on certain income depending on the type of business.

Requirements for an Arkansas S Corp

Prior to choosing your business’s tax structure, it’s a good idea to understand the requirements and limitations of an Arkansas S Corp according to the IRS. 

• You must have a domestic corporation or LLC
• The corporation can have no more than 100 shareholders
• All S corporation shareholders must be private individuals (not other business entities)
• S corporation shareholders must reside in the US
• The business may only issue one class of stock, meaning that all members must have the same distribution amount
• The corporation needs to be eligible — ineligible entities include certain financial institutions, insurance companies, and domestic international sales corporations

Pros and cons of Arkansas S Corp election 

Are you trying to determine if the S Corporation tax designation is right for your new business? Choosing your tax structure is highly dependent on your business’s unique circumstances. Here are some factors to consider. 

Pros of S Corp election

Pass-through taxation is the most prevalent benefit of electing to file as an S Corporation. Self-employed business owners may also opt for classifying some of their income tax as distribution and some as salary. This could save on self-employment taxes. An Arkansas S Corp has the option to use either the accrual or cash accounting method if you don’t keep an inventory. 

Cons of S Corp election

S Corp election involves filing all of the initial and ongoing paperwork to form and maintain an official Arkansas business. Businesses that have elected S Corporation status must adhere to other obligations of the business structure including elections, notification, and ownership restrictions.

S Corporations can also only have one class of stock, and no more than 100 shareholders, although it can have both non-voting and voting shares. S Corps are subject to increased IRS scrutiny because of the options for payment classification. 

We can help

Creating your Arkansas S Corporation doesn’t have to be complicated. In fact, we can even start your S Corp for you as part of our LLC formation service. There’s a lot that goes into starting and maintaining a business. You don’t have to know it all. We’re here to help with all your Arkansas business needs.