Washington, popularly known as The Evergreen State, offers a bunch of benefits for business owners, especially the state capital Olympia has a lot to offer to the rising entrepreneurs in the state. If you want to start a business in Washington, you must choose an appropriate corporate structure. You can have a corporation or a sole proprietorship or set up an LLC in Washington. There are a few guidelines that you should be aware of when it comes to starting an S-Corporation. In Washington, S-Corporation is businesses’ most common corporate structure, especially start-ups. It was developed in order to give companies limited liability protection while preserving the advantages of being a distinct legal organization.
In this article, you will learn about how to start an s-corporation in Washington. You will also learn whether an s-corporate business structure suits your business. Please read all the points carefully before starting your business in Washington.
On this page, you’ll learn about the following:
What is an S-Corp in Washington?
An S corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for both corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.
If you want an S corp status for your business, you can always form an LLC to protect your personal assets from business debts. It takes some basic steps to have a successful s-corporation in Washington. S-Corps do pay corporate income taxes, but they are still treated as disregarded companies for federal tax purposes.
S-corps pay corporate taxes that LLCs do not have to pay. If you want to have an S-corp status, then we would recommend you have an LLC instead. This will protect your personal assets from your business liabilities and you don’t have to pay any corporate taxes.
–LLCBuddy Editorial Team
Limitation and Requirements of S-Corp in Washington
As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-
- Be a domestic corporation.
- Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
- Have just one type of stock.
- Have a maximum of 100 shareholders or members.
- Have only permitted individuals, certain trusts, and estates as stockholders or members.
If you are qualified for the limitations and requirements, you can apply for an S-Corp in Washington.
How to Start an S-Corporation in Washington?
To create S-Corp in Washington, you must follow the below guidelines that include forming a business name, hiring a Registered Agent, filing your Articles of Organization, creating an operating agreement in Washington, requesting an EIN, filing a form 2553.
Step 1: Register a Business Name in Washington
After you have decided on the idea to start an S-Corp in Washington, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.
If you want to set up an LLC, there is a complete guide on Washington LLC name guidelines for a proper LLC name. Here are some guidelines you must follow while naming your S-corp.
- Avoid profanities
- The name should be available, and no other entity should have the same name in Washington.
- Limit of restricted words that need a license in Washington, for example, doctors, attorneys, etc.
- Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)
Step 2: Hiring the Washington Registered Agent
The next step in starting an S-corp in Washington is hiring a Washington Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence in Washington. Forming an LLC and an S-corp will be easier if you have Registered Agent in Washington.
Step 3: File Your Washington Articles of Organization
The Articles of Organization is an important document to start your limited liability company (LLC). Washington Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. In order for the “Articles of Organization” to be filed, you need to pay a filing fee to the state. In Washington, the filing fee is $200 (online and $180 by mail).
In California, along with the Articles of Organization, you must send the Statement of Information to file your company. The statement of information is a mandatory document in California, but other states do not have this document.
Step 4: Creating an Operating Agreement in Washington
After you have filed your Articles of Organization in Washington, the next step is to create an LLC operating agreement in Washington. The Washington LLC operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following-
- Article I: Organization
- Article II: Management and Voting
- Article III: Capital Contributions
- Article IV: Distributions
- Article V: Membership Changes
- Article VI: Dissolution
After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure. For more details about how an operating agreement works, please check Operating Agreement.
Step 5: Request for EIN in Washington
After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.
The application of an EIN in Washington can be through the following:
- Apply Online- You can apply for EIN online, the most desirable and fastest method for users.
- Apply by Fax- Another method of obtaining EIN is to fax Form SS-4 (PDF) after entering all the correct information to (855) 641-6935.
- Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
- Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.
If you would like to be assisted in getting an EIN in the Internal Revenue Service, we can get your EIN for you. Our EIN service is quick and hassle-free. For more details about EIN for your business, check why you need EIN.
Step 6: File Form 2553 for Your S-Corp Business in Washington
Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.
If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In Washington, you can send your form 2553 to the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .
Advantages of Starting an S-Corporation in Washington
Filing an S-Corp in Washington has numerous benefits and advantages.
- Writing Off Losses: With S-corp, owners can deduct business losses from their individual income statements. If the company loses money in the first few years, it may balance its other sources of revenue. Even so, understand the shareholder loss limitations set by the IRS.
- Pass-Through Taxation: Starting an S-Corp is the widely known advantage in forming this kind of business structure since an s-corp uses a pass-through taxation structure. The company does not pay twice the tax in this kind of taxation. Because of this structure, most start-ups and entrepreneurs in Washington apply for an S-Corp LLC.
- Qualified Business Income Deduction: A qualified business income, or QBI, is the total of all qualified items of income, gain, deduction, and loss from any qualified trade or business, including S-Corp. With this, S corp owners may deduct up to 20% of their eligible earnings under the Tax Cuts and Jobs Act.
FAQs
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Why Washington S Corporation is So Important
One of the main reasons why the S Corporation is favored by many small business owners in Washington is because of its tax benefits. As an S Corporation, the business itself is not subject to federal income tax. Instead, the profits and losses are passed through to the shareholders, who then report the income or loss on their personal tax returns. This means that S Corporations are not subject to the double taxation that can occur with C Corporations, where the corporation pays taxes on its profits and the shareholders also pay taxes on their dividend income.
Another reason why the S Corporation is so important in Washington is because of the limited liability protection it offers to shareholders. As with a traditional corporation, the shareholders of an S Corporation are not personally liable for the debts and liabilities of the business. This means that their personal assets are protected in the event that the company incurs financial trouble or is the subject of a lawsuit.
Furthermore, the S Corporation structure allows for flexibility in ownership and the ability to easily transfer ownership in the future. Unlike a traditional C Corporation where ownership is more structured and less flexible, an S Corporation allows for up to 100 shareholders and does not have restrictions on who can be a shareholder. This makes it easier for S Corporations to attract investors and grow their business.
Additionally, operating as an S Corporation in Washington can also lend credibility to a business. Many customers and vendors view S Corporations as more reputable and stable due to the formal structure and adherence to regulations required to maintain S Corporation status. This can help a business attract and retain clients and partners, ultimately leading to long-term success.
Lastly, the S Corporation structure in Washington allows for more options when it comes to retirement planning and employee benefits. S Corporations have more leeway in terms of setting up retirement plans for employees, such as 401(k)’s and pension plans, which can be advantageous in attracting and retaining top talent. Additionally, S Corporations can also provide tax-free fringe benefits to employees, such as health insurance and childcare assistance, which can ultimately lead to a more satisfied and productive workforce.
In conclusion, the S Corporation is a crucial entity structure for small businesses in Washington due to the myriad of benefits it offers, including tax advantages, limited liability protection, flexibility in ownership, credibility, and options for retirement planning and employee benefits. Entrepreneurs in Washington looking to start a business should strongly consider forming an S Corporation to set themselves up for long-term success and growth.
Conclusion
In conclusion, starting an S-corp in Washington is a strategic choice for entrepreneurs seeking the benefits of limited liability and favorable tax treatment. One can successfully establish an S-corp by following the outlined steps, including selecting a unique name, filing the Articles of Incorporation, obtaining necessary licenses, and adhering to state-specific regulations. Ultimately, this corporate structure offers a strong foundation for business growth and protection, making it a worthwhile consideration for those looking to launch a venture in Washington.