Introduction
Starting an S Corp. in Alabama is an exciting venture. First, begin by forming a corporation, which involves filing the Articles of Incorporation with the Alabama Secretary of State. This document includes your business name, address, and the names of your initial directors. Choose a unique name that reflects your brand and meets state requirements.
Once you file the Articles and get approval, apply for an Employer Identification Number (EIN) from the IRS. This number is crucial because it identifies your business for tax purposes. Next, you fill out Form 2553 to elect S Corp status. Timing is key here; you need to submit this form within two months and 15 days of your incorporation or by the tax year deadline.
Don’t forget about state-specific requirements. You might need business licenses or permits based on your industry. With these steps, you’re setting yourself up for potential tax benefits and limited liability. Starting an S Corp in Alabama gives you a solid foundation for your business journey, so dive into each step as you imagine making this dream a reality!
1. Understand What is an S Corp
Before you dive into the how, understand what an S Corporation (S Corp) is. An S Corp. is a type of corporation that gets special tax treatment with the IRS. The key advantage is that an S Corp allows you to avoid paying corporate income tax. Instead, the company’s profits or losses are passed through to the shareholders (which could be you) and taxed at your individual level. This is great because you avoid double taxation. Instead of paying taxes as a business and then paying taxes again on your personal income, it’s just taxed once.
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2. Pick a Name for Your S Corp.
The first thing you need to do is choose a name for your S corporation. Your business name must be unique and different from any other business already registered in Alabama.
To Pick a Name:
- Check Availability: You can check to see if your desired business name is available by visiting the Alabama Secretary of State’s website. It has an online tool where you can search for business names that are already registered. You want to make sure no one else is using the same name or a name that’s too similar.
- Legal Requirements: The name must end with “Corporation,” “Incorporated,” “Company,” or an abbreviation like “Inc.” or “Corp.” These endings show that your business is incorporated.
- Domain Name: If you’re thinking of having a website, check if the domain name is available. You may want your business name and domain name to match.
3. File Articles of Incorporation with Alabama
After you pick a name, then file Articles of Incorporation. This is an important legal document that officially creates your corporation in Alabama. Without this step, your business can’t exist as a legal entity.
What are the Articles of Incorporation?
This document provides basic information about your company, like:
- Your business name (the one you picked earlier).
- The address of your principal office (where your main office or business location is).
- The purpose of your business (a short explanation of what your company does).
- The name and address of your registered agent
Filing the Articles
You need to file this document with the Alabama Secretary of State. You can do this online or by mail. If you’re doing it online, the Alabama Secretary of State’s website provides a filing service where you can upload everything digitally.
Filing Fees
There’s a filing fee for submitting your Articles of Incorporation. In Alabama, the fee is about $100 to $200 depending on how you submit your filing and other factors. Make sure you check the current rates on the Secretary of State’s website to know the exact fee.
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4. Choose a Registered Agent
One thing that must include in your Articles of Incorporation is the name of your registered agent. This is a requirement for all businesses in Alabama.
A registered agent is a person or company that’s responsible for receiving legal documents on behalf of your S Corp. This could include important paperwork from the government or any legal notices if your company gets sued.
You can be your own registered agent if you want, as long as you have a physical address in Alabama and are available during business hours to receive documents.
Alternatively, you can hire a professional registered agent service. These companies handle legal documents for you and make sure nothing important gets missed. You might find this easier if you don’t want to worry about being available during regular business hours.
5. Create Corporate Bylaws
Now that you’ve filed your Articles of Incorporation and chosen a registered agent, the next step is to create corporate bylaws. This is a set of rules for how your business is going to be run.
What are corporate bylaws?
Bylaws are the rules and guidelines for how your S Corp operates. It outlines things like:
- How decisions are made within the company.
- How often are you going to hold meetings.
- How you handle adding new shareholders or if someone leaves the company.
- How to manage the corporation’s finances and voting procedures.
Although you don’t have to file the bylaws with the state of Alabama, ensure you have them in place. It helps you keep things organized and can protect you legally.
If you’re the only person running the S Corp, the bylaws might be very simple, but if you have other people involved, the Bylaw helps everyone understand their responsibilities and the rules of the business.
6. Obtain an EIN (Employer Identification Number)
Now you need to get an Employer Identification Number (EIN) from the IRS. This is like a Social Security Number for your business. You need this number for many things, like:
- Opening a business bank account.
- Filing taxes.
- Hiring employees.
- How do you get an EIN?
It’s pretty simple to get one. You can apply online on the IRS website, and it’s free. Once you fill out the application, you get your EIN immediately.
7. File Form 2553 to Elect S Corporation Status
After you’ve incorporated your business with the state of Alabama, you need to officially tell the IRS that you want to be taxed as an S Corp. This is done by filing Form 2553.
What is Form 2553?
Form 2553 is how you request the S Corporation tax status. It’s a special form you send to the IRS, and once it’s approved, you get all the tax benefits of an S Corp.
You need to file this form within 75 days of incorporating your business, or within 75 days of the beginning of the tax year that you want the S Corp status to take effect. So, it’s important to do this step as soon as you finish incorporating your business.
You can find Form 2553 on the IRS website, and it’s fairly straightforward to fill out. It asks for details like your corporation’s name, EIN, and information about the shareholders.
8. Maintain Your S Corporation
Once your S Corp is up and running, you need to keep up with a few ongoing requirements to maintain your corporation.
Ongoing Requirements
- Annual report: In Alabama, you must file an annual report with the Secretary of State. This report updates the state on basic information about your business, such as your business address and the names of your directors.
- Taxes: Even though an S Corp helps you avoid double taxation, you have to file taxes for your corporation. You need to file Form 1120S with the IRS for your federal taxes and the Alabama Business Privilege Tax return for state taxes.
- Meetings: Even if you are the only owner or shareholder of your S Corporation, it’s a good idea to continue holding annual meetings and documenting important decisions. These meetings don’t have to be formal if it’s just you, but keep records (called “minutes”) of any major decisions. This helps prove that your S corporation is operating properly in case you ever face legal scrutiny. If you have multiple shareholders or directors, these meetings are even more important to maintain transparency and accountability within the company.
Ongoing Compliance with Alabama Law
Another key part of maintaining your S Corporation in Alabama is keeping up with state requirements.
- Annual Business Privilege Tax: Alabama requires all corporations, including S corporations, to pay the Business Privilege Tax. The tax is based on the net worth of your business and can range from $100 to $15,000, depending on the value of your company. You file this tax with the Alabama Department of Revenue using Form CPT (Corporation Privilege Tax Return). Make sure to file this every year to avoid penalties.
- Annual Report Filing: In Alabama, you’re also required to file an annual report as part of your Business Privilege Tax return. This is essentially a way for the state to stay updated with your business information. File this report at the same time as your Business Privilege Tax return. Keep in mind that the due date is within 2-3 months after the beginning of your fiscal year.
- Taxes and Payroll: Even though an S Corp helps you avoid double taxation, pay payroll taxes if you have employees, even if you’re the only employee of your corporation. As an owner of an S Corp, you are required to pay yourself a reasonable salary, which is subject to payroll taxes like Social Security and Medicare. These taxes are filed through Form 941 on a quarterly basis.
Also, since the profits of the S Corp pass through to you personally, you have to report these earnings on your individual tax return, using Schedule K-1 from the S Corp’s Form 1120S (which is the federal income tax return for S Corporations).
Make sure to consult with a tax professional to stay compliant with both federal and state tax laws. The last thing you want is to miss a tax deadline or file incorrectly, as that could lead to fines or penalties.
9. Hire Employees or Independent Contractors
If you’re planning to hire employees at some point, you need to take care of a few extra things. Here’s what you need to know:
- Register with the Alabama Department of Labor: Set up an account with the Alabama Department of Labor so you can handle unemployment insurance and state payroll taxes. This is required if you have employees.
- Worker’s Compensation Insurance: Depending on the number of employees and the nature of your business, you might also be required to get worker’s compensation insurance. This protects your employees in case they get injured on the job.
- Withhold Payroll Taxes: As an employer, you’re responsible for withholding federal and state taxes from your employees’ paychecks. You also need to file the necessary forms, like the W-2 forms for employees and 1099 forms for independent contractors, at the end of the year.
Recap
To start an S Corp in Alabama, file the Articles of Incorporation with the Alabama Secretary of State, which include your business name and address. Make sure your chosen name is unique and complies with state rules. After that, obtain an Employer Identification Number (EIN) from the IRS, which is essential for tax purposes.
Next, elect S Corp status by filling out Form 2553 and submitting it to the IRS within two months and 15 days of forming your corporation. This step is crucial for enjoying the tax benefits of an S Corp.
Lastly, check for any specific licenses or permits required for your business in Alabama. That’s it! With these steps, you’re on your way to starting your S Corp.
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