Form a Mississippi S Corp

What to know before creating an S Corporation in Mississippi 

There are a couple of things to keep in mind before creating a Mississippi S Corp including requirements and limitations. If you don’t do anything else after forming your business entity and receiving your EIN, your business will automatically default to a C Corp. You have to file Form 2553 to change that.

File the form not more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect. There are exceptions to specific circumstances that may have prevented you from making a timely election. 

What is an S Corporation? 

Defined by Subchapter S of the IRS tax code, an S corporation is a tax designation that is chosen by an LLC or corporation. It is important because it governs how the business is taxed.

Mississippi S Corporation Requirements

Though the S Corporation election is the best option for many companies, it is not meant for everyone. Here are the requirements:

• Your business must be a domestic corporation or LLC
• The business may only issue one class of stock, meaning that all members must have the same distribution amount
• The corporation can have no more than 100 shareholders
• All shareholders must be private individuals (not other business entities)
• Nonresident aliens cannot be shareholders
• Ineligible corporations include certain financial institutions, insurance companies, and domestic international sales corporations.

If you are not sure whether your business qualifies for S Corp election, consider seeking advice from a tax or finance professional. 

Pros and Cons of Mississippi S Corp Election 

Choosing a tax structure for your company is highly dependent on your business’s unique circumstances. Here are some factors to consider.

Pros of S Corp election

Owners of S Corps are considered employees of their company. This designation has the potential to save thousands of dollars on self-employment taxes as a result. S Corps are pass-through taxation entities, which is the most prevalent benefit of electing to file as an S Corporation. Self-employed business owners may opt for classifying some of their income tax as distribution and some as salary, resulting in tax savings. 

Cons of S Corp election

MS businesses that have elected S Corporation status must adhere to other obligations of the business structure, which is more formal than that of a C Corp. An S Corporation can have no more than 100 shareholders and only one class of stock. S Corps are often subject to increased IRS scrutiny because of the options for payment classification. A Mississippi S Corp still has to pay corporate franchise taxes. 

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

An S Corporation is a business entity that has elected to pass its corporate income, losses, credits, and deductions to its shareholders or members to include on their personal income taxes. These “pass-through” entities are not taxed at the corporate level. A Mississippi S Corp does have to pay corporate franchise taxes. 

C Corporations are separately taxable entities. Income is taxed at the corporate level and again on the individual tax returns of members or shareholders. This is called double taxation. 

Can LLCs choose an S Corporation election?

Both LLCs and corporations can elect Mississippi S Corp status. Here are some of the benefits and downfalls of taxation as an S Corp for LLC tax purposes and corporations. 

We can help

If you are in the process of forming your business, you should strongly consider your tax designation and what is best for you. We can help you start your LLC and provide S Corp formation services at the same time.

There are many steps on the road to a successful business, and it is easy to miss some of them. We have the tools and services you need to stay on track, from formations to compliance and business maintenance. You have enough to think about already, so let us help lighten your load.