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Paying taxes is a must when you run a small business. If you choose an S corp tax designation, you can substantially reduce how much you pay the IRS. This guide will take you through setting up an S corp in Utah for your business entity.
S Corporation in Utah: Key Points
S corp status is a tax classification that applies to an LLC or a C corporation. Entrepreneurs must create one of the two business entities before electing S corp status.
Entrepreneurs must file form 2553 to select S corp status within 75 days of creating their LLC or C corporation.
Utah requires that all C corporations pay a franchise tax, the form for which includes a $100 minimum privilege tax. S corporations are exempt from the latter tax.
Unlock tax savings and ensure compliance with critical regulations with our assistance.
What Is an S Corporation?
An S corporation refers to an IRS tax designation that can be elected by a Utah limited liability company (LLC) or C corporation. S corp status doesn’t indicate a formal business entity. It signifies a specific tax status under Internal Revenue Service (IRS) tax code subchapter S.
Eligible Utah companies electing S corp status get significant savings on self-employment tax and avoid double taxation.
Tax Considerations for an S Corporation in Utah
Choosing S corp status can allow your company to reduce its business tax burden. S corp tax designation allows income, losses, and deductions to pass to company shareholders. Company members report their share of profits and losses on their personal income tax returns.
By passing profits and losses through to personal income taxes, company members avoid double taxation, which refers to being taxed twice for income on individual and corporate tax returns. Companies that elect S corporation tax treatment also benefit from paying significantly less self-employment tax.
Utah Tax Treatment of S Corporations
Utah S corporations save a significant amount of money on federal taxes. Owners also tend to pay less self-employment taxes while protecting their assets from business debts. You must own an LLC or C corporation to file for S corp status in Utah by filing IRS Form 2553.[1]
Utah Franchise Tax for S Corporations
According to the Utah State Tax Commission, every C corporation incorporated in Utah must file a corporate franchise tax return. C corporations use form TC-20 to file.[2] There is a minimum privilege tax of $100 for every C corporation and LLC that files this form.
Every S corporation must also file form TC-20, but the minimum privilege tax is not required.
Pass-Through Taxation
Pass-through taxation occurs when company shareholders pay most of the business’s taxes on their personal income tax returns. Income generated by the company “passes through” to owners, who pay taxes on their share of company earnings. Taxes paid at the personal rather than the corporate level tend to be lower.
S corp tax treatment also enables small business owners to avoid double taxation. This refers to paying corporate taxes on revenue and later paying tax again when there are distributions or sales of stock.
Requirements for Forming an S Corporation in Utah
S corp status isn’t available for all businesses. Start by checking the eligibility of your limited liability company. Financial institutions or businesses that get most of their revenue from exports cannot become S corporations.
All S corporation shareholders are considered employees. Each shareholder must receive a reasonable salary to maintain S corporation status. That means running payroll and adhering to the following IRS requirements for S corporations:[3]
Be an eligible domestic corporation (Limited liability company (LLC) or Corporation)
Have only allowable shareholders (individuals, estates, and certain trusts)
Have shareholders who are U.S. citizens or resident aliens
Have no more than 100 shareholders
Have only one class of stock
Obtain shareholder consent
How to File as an S Corp in Utah in 6 Steps
Before filing as an S corporation in Utah, you must form an LLC or a C corporation through the following steps.
Step 1: Choose a Business Name
Before setting up your S corporation in Utah, you must choose a business name. Select an engaging company name that accurately describes your services or products. Do not choose a name that sounds like another company or trademark.
To ensure your business name isn’t already in use in Utah, try Swyft Filing’s free business name search. Or check for your desired business name on the Utah.gov Business Name Search tool.[4] The name reservation fee is $22.
Also, follow these additional Utah Business Name Conventions and Policies:[5]
Avoid wording that might suggest a connection to a government agency or political subdivision
The name must be written in English or translated into English from another language
You must obtain permission from the appropriate agency if you use a restricted word
Use Limited Liability Company, limited company, limited liability company, LC, or LLC in the name
The name can’t suggest that your company has been formed for a purpose other than what is included in the Articles of Organization
You should reserve your business URL to ensure it’s available when you're ready to set up a company website.
Additionally, protect your business name by filing for a name trademark with the United States Patent and Trademark Office (USPTO).[6] You can also check the Utah Trademark Manager tool to ensure no existing trademarks are using your company name.[7]
Trademarking your company through the state is cheaper and faster than the federal government. However, you get more protections with federal trademarking.
Step 2: Appoint Directors and a Registered Agent
Utah law requires that LLCs have at least one person on a board of directors. If you are running a C corporation, you need at least three individuals on the board. The board of directors manages affairs for your company.
Companies must also appoint a registered agent, an individual or organization authorized to receive official correspondence for your company.
While someone from your company can be a registered agent, that isn’t always advisable. A Utah registered agent must have a physical address in the state and be present at that location from 9 am to 5 pm, Monday through Friday. This is often not feasible for S corp directors.
When you act as your own Registered Agent, your address is also a matter of public record, so your privacy is jeopardized. Many business owners find hiring an outside registered agent service, such as the one provided by Swyft Filings, is the best course of action.
Step 3: File Certificate of Organization
Filing your company’s Certificate of Organization, also known as Articles of Organization and Certificate of Formation, officially registers your LLC in Utah. File the Certificate of Organization with the Utah Department of Commerce for $54.[8]
The form for the Certificate of Organization requires the following information:
Name of limited liability company
Principal office address
Whether the company has been established as a series
Address of Registered Agent
Name and signature of Organizer
Names and addresses of members and managers
Purpose of the company
If the business is female- or minority-owned
For your business to remain in good standing, you must file an annual report for your LLC and pay a filing fee of $18.
Step 4: Create an S Corp Operating Agreement
The State of Utah does not require an operating agreement, but creating one is a good idea. An operating agreement is an internal document that outlines the operational basics of the company, including bylaws and the duties of members and directors. It also includes information on how money will be handled.
Additionally, it outlines the distribution of company profits and shareholder contributions to the LLC.
The S corp operating agreement should include the following:
Names of LLC business owners
LLC member duties
Financial interests of members in terms of profits and property
How profits will be distributed among members
Voting procedures and requirements
Whether LLC interests can be transferred to third parties
LLC manager responsibilities
How the LLC can be dissolved
Step 5: Apply for an Employer Identification Number
Before electing S corp status, you must obtain an employer identification number (EIN) from the IRS. EINs are social security numbers for businesses. The IRS can use this number to identify your business and track employment and income taxes.
You must also have an EIN to begin business operations and conduct banking in the company name.
Apply for an EIN on the IRS website. Swyft Filings can also obtain your EIN for you free of charge.[9]
Your Utah company must also obtain a sales tax number and a withholding number by filing form TC-69 on Utah.gov.[10]
Step 6: File Form 2553 for S Corporation Election
The last and most crucial step is to file Form 2553 with the IRS.[11] You elect S corp status for your business entity with this form.
Fill out form 2553 with the following information:
Company EIN
Date of incorporation
State of incorporation
S corp election date
Chosen tax year
Whether family members are being treated as one shareholder
Main contact information
Shareholders’ names and addresses
Percentage of stock owned by shareholders
Fiscal year selection
Signatures
The IRS requires that you file form 2553 within 75 days of starting an LLC or C corporation, or anytime in the year before the tax year of the S corporation election, or no more than 75 days following the beginning of the tax year when the S corp status tax designation is to take effect.
If you don’t file Form 2553 on time, you must also file Form 8832, Entity Classification Election to be classified and taxed as an S corp.[12]
Utah S Corp vs. Utah LLC
Consider the pros and cons of forming an S corp before proceeding. Remaining a limited liability company may be the best choice for your business.
Advantages of Starting an LLC in Utah
A Utah LLC is easy and inexpensive to start and maintain. They don’t require annual meetings and minutes and have no restrictions on the number of members you can have in the company and the type of management structure you use. The latter is not the case with S corporations, which are limited to no more than 100 shareholders and one class of stock.
Most small business owners form an LLC to protect their personal assets. Belongings, including your home, car, and savings, can’t be seized to pay for company debt.
A Utah LLC also benefits from pass-through taxation. Company profits and losses pass through to shareholders. They are taxed on their personal tax returns rather than at a more expensive corporate level.
This also avoids double taxation — referring to paying corporate taxes and then paying at a personal level. If these benefits work with your business plans, consider setting up your LLC with Swyft Filings.
Disadvantages of Starting an LLC in Utah
There are setup and yearly fees and forms to fill out when you start an LLC in Utah. You must pay $54 when you form your company and $22 to reserve your business name. You must also file an annual report and pay $18. You must also pay for a registered agent service if you don’t take care of that role internally.
Advantages of Forming an S Corporation in Utah
Like limited liability corporations, S corporation election protects your assets if your business owes a debt.
Tax savings are the main advantage of forming an S corp in Utah. In addition to benefiting from pass-through taxation and paying less costly taxes on your personal income tax, you only pay self-employment tax on a reasonable salary.
The remaining profits are distributed to each company shareholder and are not subject to self-employment tax. This results in substantial tax savings.
Disadvantages of Forming an S Corporation in Utah
There are some limitations to S corporations. You are only allowed 100 shareholders and one class of stock. If you plan to grow your company quickly and wish to have over 100 shareholders, this tax status won’t work for your business.
S corp shareholders must also be U.S. citizens or resident aliens, and only certain types of estates and trusts can qualify. If you plan on expanding overseas, this tax status may not work for your long-term plans.
With S corp status, you also need to run payroll. And the IRS tends to watch S corporations more closely to ensure compliance.
Get the Legal Benefits of an LLC With the Tax Benefits of an S Corp
S corps combine the personal asset protection of LLCs with additional tax advantages. Expect to save substantially with this business entity’s reduced self-employment tax and pass-through taxation.
Ready to File for S Corp Status in Utah?
Consider using our business formation services if you want expert assistance setting up your S corp. Our specialists will efficiently set up your S corporation. It’s easy to get started with Swyft Filings.
Maximize Tax Benefits: Experience pass-through taxation with Utah S corp status and avoid double taxation.
Access a One-Stop Solution: Establish an LLC or C corporation easily and then transition to S corp status, all within our platform.
Stay Compliant: Our compliance alerts help keep you up-to-date on all the complex compliance requirements of an S corp so you can stay on the government’s good side.
Frequently Asked Questions
What is an S Corporation in Utah?
An S corporation in Utah is a business that has elected a specific tax status. Only certain kinds of companies are eligible for S corp status.
S corporations feature pass-through taxation wherein income and losses flow through to the company shareholders’ individual tax returns. Those shareholders then pay taxes on a reasonable salary. This results in a lower self-employment tax burden.
Does Utah recognize S corporations?
Yes, Utah recognizes S corporations in good standing.
What is the turnaround time for filing for S corp status with the IRS?
According to the IRS, businesses that file for S corp status should receive a determination as to if their election is approved 60 days after filing Form 2553.
What is the difference between an S corp and an LLC?
While LLCs and S corporations both feature pass-through taxation, S corporations offer more tax savings. Shareholders in S corps only pay self-employment tax based on a reasonable salary. The remaining profits are withdrawn as a distribution; no self-employment tax is due on that portion.
What are the requirements for an S corporation in Utah?
For a Utah business to qualify for S corp status, the company must be an LLC with no more than 100 shareholders and offer only one form of stock. All shareholders must be U.S. citizens or resident aliens.
Are taxes for LLCs and S corps the same?
Taxes for S corps and LLCs are not the same. While both business classifications pay pass-through taxation via shareholder personal income tax returns, S corp status offers more tax savings.
S corporation owners pay taxes on what is considered a reasonable salary. In contrast, LLC shareholders must pay self-employment and personal income tax on the total amount earned.
What is the S corp tax rate?
Shareholder personal tax rates determine the S corporation tax rate. Those rates currently run between 10% to 37%.[13]
How do I dissolve an S corporation in Utah?
Dissolve an S corp in Utah with the State of Utah Department of Commerce Division of Corporations & Commercial Code Statement of Dissolution.[14]
Bibliography
Internal Revenue Service. “About Form 2553, Election by a Small Business Corporation.” Accessed February 13, 2023.
Utah State Tax Commission. “Utah 2022 TC-20S Forms and Instructions, S Corporations.” Accessed February 13, 2023.
Internal Revenue Service. “S Corporations.” Accessed February 13, 2023.
Utah.gov. "Utah.gov Business Name Search tool.” Accessed February 13, 2023.
Utah Commerce Division of Corporations and Commercial Code. “Utah Business Name Conventions and Policies.” Accessed February 13, 2023.
United States Patent and Trademark Office. “Trademark basics.” Accessed February 13, 2023.
Utah.gov. “Utah Trademark Manager tool.” Accessed February 13, 2023.
State of Utah Department of Commerce. “Certificate of Organization Limited Liability Company.” Accessed February 13, 2023.
Internal Revenue Service. “Apply for an Employer Identification Number (EIN) Online.” Accessed February 13, 2023.
Utah State Tax Commission. “Utah State Business and Tax Registration TC-69.” Accessed February 13, 2023.
Internal Revenue Service. “Form 2553.” Accessed February 13, 2023.
Internal Revenue Service. “Form 8832.” Accessed February 13, 2023.
Internal Revenue Service. “IRS provides tax inflation adjustments for tax year 2022.” Accessed February 14, 2023.
State of Utah Department of Commerce Division of Corporations & Commercial Code.“Statement of Dissolution.” Accessed February 14, 2023.
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