File a Missouri S Corp

Missouri S Corp Filing Requirements

For the IRS to accept your application for S corp election, you must meet the filing requirements of the Internal Revenue Code. To qualify to become an S corporation, a company must:

• Be a domestic LLC or corporation
• Have no more than 100 shareholders or members (“shareholders” is the term for owners of a corporation, while “members” is the term for owners of an LLC)
• Not be an ineligible corporation, such as certain financial institutions, insurance companies, and domestic international sales corporations
• Have only one class of stock
• Have only allowable shareholders or members, which includes individuals, certain trusts, and estates. The shareholders/members may not be partnerships, corporations, or non-resident aliens. A nonresident alien is an alien who has not passed the green card test or the substantial presence test.

If your business entity meets the criteria above, you can apply for an S corp election.

Considerations for Missouri S Corp Taxes

In an S corp, the business itself doesn’t usually pay federal income taxes. But what about Missouri income taxes?

Missouri will apply state income taxes for your S corp the same way the federal government does; that is, the business itself won’t be taxed on income, just the individual owners.

However, for the purposes of Missouri income tax, every S corporation must file Form MO-1120S if they file Federal Form 1120S and the S corporation has: 1) a shareholder who is a Missouri resident; or 2) any income derived from Missouri sources (Section 143.471, RSMo).

How to Start an S Corp in Missouri

To set up an S corporation in Missouri, you need to create either a limited liability company (LLC) or a C corporation if you haven’t already done so. Then, you’ll complete and submit an election form to the IRS.

Forming a Missouri LLC

1. Name your Missouri LLC
2. Appoint a registered agent in Missouri
3. File Missouri Articles of Organization
4. Create an operating agreement
5. Apply for an EIN
6. Apply for S Corp status with IRS Form 2553

For more details on these steps and additional info, visit our “Start a Missouri LLC” page.

Forming a Corporation in Missouri

1. Name your Missouri corporation
2. Appoint Directors
3. Choose a Missouri Statutory Agent
4. File the Missouri Articles of Incorporation
5. Create Corporate Bylaws
6. Draft a Shareholder Agreement
7. Issue shares of stock
8. Apply for Necessary Business Permits or Licenses
9. File for an EIN and review tax requirements
10. Submit Your Corporation’s First Annual Report
11. Apply for S Corp status with IRS Form 2553

If you’d rather form a Missouri corporation, we guide you through the process on our Missouri incorporation page.

File form 2553 to apply for S corp status

Once your LLC or C corporation formation is approved by the state, you need to file Form 2553, Election by a Small Business Corporation, with the IRS to get S corp status. 

The IRS requires you to complete and file your Form 2553: 

• Within 75 days of the formation of your LLC or C corporation, or no more than 75 days after the beginning of the tax year in which the election is to take effect

OR

• At any time during the tax year preceding the tax year the election is to take effect.

One caveat for LLCs wishing to file as an S corp: If your LLC is past the 75-day election deadline, you’ll also need to file Form 8832, Entity Classification Election, to elect to be taxed as a corporation. Then you would file both Form 8832 and Form 2553 together via USPS-certified mail. 

All of the shareholders/members must sign the consent statement portion of the form. For more information on when and how to file Form 2553, see the IRS website.

Keeping Your S Corp Compliant

If your S corp is a corporation, you’ll need to file a Missouri annual report, due every year at the end of the month that the corporation incorporated or qualified. The state charges an accompanying fee of $20 if filing online and $45 if filing by mail. LLCs don’t need to file an annual report in Missouri.

As with most corporations, Missouri corporations must have an annual meeting in which to conduct business and elect the board of directors. The time and place of the meeting should be determined by the company’s bylaws; in the absence of bylaws, the meeting must happen on the second Monday in January.

A Missouri corporation is also required to keep permanent records of the minutes of all its meetings, all actions taken by the members or directors without a meeting, and a record of all actions taken by committees of the board of directors.

Pros and Cons of S Corp for Missouri LLCs and Corporations

Having an S corp election brings a different set of pros and cons for an LLC.

Advantages of S Corp Status for LLCs

The pluses of filing as an S corp for an LLC aren’t exactly the same as they are for C corporations. A traditional LLC already has pass-through taxation, so the benefits of S corporation election for an LLC come from federal self-employment tax. We’ll explain.

Self-Employment Taxes 

The members of a regular LLC are considered self-employed. They’re paid by receiving their share of profits from the LLC, but they can’t be employed by the LLC. Being self-employed means paying self-employment taxes (Social Security and Medicare, which add up to about 15.3%) on all profits they receive from the LLC. This is double the taxes they’d pay when working for someone else because their employer would pay half of them.

Dividing Salary and Profits

When the members elect S corp status, though, they can be compensated in two ways, by receiving their share of the profits and by being employed by the LLC. Once they do that, they only pay taxes for Social Security and Medicare on their salary and not the profits they receive. Depending on factors such as how profitable your company is, the savings could add up to a lot. (Of course, the members will still pay income and all other applicable taxes on their share of the profits and any other taxable income.) Money paid out as salary is a tax-deductible expense for the business. 

Reasonable Compensation

One provision to this is that the IRS expects LLC members to pay themselves a “reasonable salary” as an employee of the LLC. Otherwise, they could pay themself an annual salary of $0.07 and avoid contributing anything to Social Security and Medicare. 

So, what is “reasonable compensation”? While the terms aren’t 100% defined, the IRS seems to consider “reasonable” to be something similar to what others in the same field are earning for similar work.

Advantages of S Corp Status for C Corporations

If you have a C corporation (the default form of corporation), filing as an S corp has the following advantages:

Pass-Through Taxation

One big disadvantage for traditional corporations is what’s known as “double taxation.” When the corporation makes money, the IRS taxes those profits on the business level. And when those profits are ‌distributed to the shareholders, they’re taxed a second time on the shareholders’ personal tax returns.

But when a C corporation qualifies to be an S corp, those profits are only taxed at the individual level. The business itself isn’t taxed on them. This is called “pass-through taxation.”

Writing Off Losses

Just as business profits pass through to the owners of an S corp, so do the losses. Unlike the shareholders of a C corporation, S corp owners can write off the business’s losses on their personal income statements. 

Qualified Business Income Deduction

Under the 2017 Tax Cuts and Jobs Act, some S corp owners may be able to deduct up to 20% of their qualified business income. This deduction isn’t available to C corporation shareholders.

Qualified business income (QBI) is basically your share of the company’s profits, or, as the IRS puts it, “QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.” The IRS website has a detailed explanation as to what is and is not included in QBI. There’s an income threshold that, if exceeded, may reduce your QBI (see the IRS website for details). 

Disadvantages of S Corp Status for LLCs

LLCs with S corp status also have drawbacks, though:

Stricter Requirements 

S corps have more requirements than a standard LLC. An S corp can have no more than 100 members, and none of them can be partnerships, corporations, or non-resident aliens. A regular LLC doesn’t have these limitations.

Extra IRS Scrutiny

Because of the “reasonable salary” restrictions, the IRS monitors LLCs filing as S corps more closely, meaning there’s a greater chance of being audited.

More Accounting and Bookkeeping

Having an LLC that files as an S corporation generally means more paperwork. If you don’t already have to do payroll for your business, being an owner-employee means that you’ll have to start. Your taxes will be more complex, too.

Disadvantages of S Corp Status for C Corporations

S corp status also has its downsides for C corps:

Limited Number of Shareholders

An S corp can’t have more than 100 shareholders, while a C corporation has no such restriction.

Limited Types of Shareholders

All S corp shareholders must be U.S. citizens, or certain trusts or estates. That could limit your ability to expand beyond the U.S. You also can’t have corporations or partnerships as shareholders. 

One Class of Stock

One way corporations attract investors is to offer preferred stock, but the IRS doesn’t allow this for S corps.

More IRS Scrutiny

There’s a greater risk of an audit because of the extra limitations S corps have; the IRS watches them more closely to see if they’re in compliance.

Missouri and Federal Resources

For more information about how S corps are treated in Missouri and other important tax information, see the Missouri Department of Revenue website. The IRS website can also provide more information on the federal guidelines for S corporations. We recommend having a trusted tax advisor or accountant. They can help you through legal and financial challenges, helping ensure compliance and tax efficiency.