When operating a small business, there are many business legal structures that you can choose from. With pros and cons to each structure, it can be overwhelming to choose the right one based on your business needs. You can choose from LLC’s, partnerships, and corporations, with the most popular corporation being an S corporation. According to the U.S. Small Business Administration, over 70 percent of U.S. businesses are owned and operated by sole proprietors or sole traders.
Whether you already operate under an S corporation or are thinking about choosing that structure for your small business, you likely have some questions about how payroll fits into everything. We have the answers for that.
How to Form an S corporation
If you’re beginning your small business journey, you likely have a few questions about how to even register yourself for an S corporation. There are three steps to tackling this part:
- Form a corporation or LLC. To become an S corporation, you first need to form your small business as a regular corporation or LLC. This is done at the state level, and you must file any appropriate forms with the secretary of state or the state division of corporations. What you need to follow varies by state, so make sure you’re checking in with the regulations for your state.
- Obtain an Employer Identification Number (EIN). Having an EIN is a key step to being a small business owner, especially when it comes to signing up for an online payroll service. To get an EIN, you need to fill out Form SS-4 with the IRS and can apply online, by mail, or over the phone (for international applicants). To make things even easier, we created an easy guide to follow during the process of getting your EIN.
- File Form 2553. Form 2553, is the form that you need to file with the IRS to officially become an S corporation. You will likely wait approximately 60 days to receive a response from the IRS, but then you will officially be an S corporation.
Understanding S corporations and Payroll
As a small business owner, there tends to be the idea that you can pay yourself whatever you want when you want, or the flip side thinking is that you can’t pay yourself because of your other business expenses. Once you become an S corporation, there are rules that you need to follow based on what the IRS mandates when it comes to S corp payroll. Payroll can be confusing, which is where choosing an online payroll service for your small business can be beneficial.
- Reasonable compensation. When operating as an S corporation, and performing services for your business, the IRS requires that you pay yourself reasonable compensation in the form of income that would appear on Form W-2 at year end. Not sure what reasonable compensation would be? Essentially, you would pay yourself what you would pay somebody to do this same job for you.
- Estimated quarterly taxes. As an S corporation business owner, if you expect to owe taxes of $1,000 or more when you file your tax return, you will have to pay estimated taxes each quarter. By using Form 1040-ES, you can calculate your estimated tax. The IRS provides a lot of helpful information about estimated taxes that will help you fully understand what your requirements are as an S corporation owner. Also, keep in mind that the deadlines for quarterly taxes are January 31, April 30, July 31 and October 31.
How SurePayroll Can Help Your S Corp Payroll Needs
The last thing you have time to focus on while running your small business is payroll, especially when it comes to the complexities that come with S corp payroll. Features you can expect by using SurePayroll for your S corp payroll needs are:
- Our free payroll app so you can process payroll on the go.
- Flexible payroll options for those moments when life happens.
- Direct deposit and the ability to print checks for your employees.
For our full list of payroll features, check out our pricing page.
