How to form an S-corporation for Automobiles

Introduction

When an S-Corporation is formed, it offers a tax advantage over other business entities. This is due to the fact that income tax is paid only once at the corporate level rather than being taxed again when profits are distributed to shareholders or employees. An S-Corporation may be formed by filing Articles of Incorporation with your state’s Secretary of State office and then hiring a lawyer to draft your Operating Agreement and Articles of Organization. Once this has been done, you will need to pay annual fees and keep the corporation active in order for it to remain valid as a legal entity with liability protection from lawsuits filed against it.

Form an S-Corporation

Forming an S-Corporation as a pass through entity is very simple, but it does require that you first form a Delaware limited liability company and then elect to be taxed as an S-Corporation.

Once the LLC is formed, you need to complete the IRS form 2553 in order to make this tax election. This form must be filed no later than two months and 15 days after your LLC is created by filing Form 8832 with the IRS.

Create a pass through entity

A pass through entity is an organization that passes its profits, losses, deductions and credits through to the owners or shareholders. An S-Corporation is a pass through entity and as such only pays tax on its income at the corporate level. The owners of the company do not pay personal income taxes on their share of corporate earnings. Instead, their share of those earnings are reported on a Schedule K-1 (Form 1065) and included in their individual tax returns.

Certain types of corporations can elect to be taxed as an S-Corporation under IRC Section 1371 et seq., which is commonly referred to as “Subchapter S” taxation.

The advantages of an S-Corporation include:

• Pass-Through Taxation – Owners do not have to pay personal income taxes on their share of corporate earnings; instead they report those earnings on Schedule K-1s and include them in individual tax returns.*
• Limited Liability Protection – Owners assume limited liability for debts incurred by the corporation.*
• Shareholder Control – In some states this type of structure allows for greater flexibility when it comes to shareholder voting rights than other structures such as LLCs.

Hire An Attorney

Although the process can be done on your own, it is much more difficult than forming a regular corporation and far less likely to be successful.

The best way to find an attorney is by asking around. If you know someone who has already established their S-CORPORATION through legal channels, ask them who their attorney was and whether or not they’d use them again. If that doesn’t work out for you, try searching for local attorneys specializing in corporations online.

File the Articles of Incorporation

This document tells how many shares are available in your company and who owns what percentage of those shares. You’ll also get a tax ID number (also known as an EIN) at this stage, which is something you’ll need for almost everything else on our list.

The third step on our checklist is to file for a DBA if necessary. A DBA stands for “doing business as.” It’s another way of saying that you’re operating under a different name than listed in your articles of incorporation or tax ID number paperwork.

Finally, make sure any important licenses have been obtained and filed properly with government agencies such as city hall or county court systems.

Pay Annual Fees and Keep The Corporation Active

Annual fees vary by state but can be as low as $20 per year. You should also keep corporate records, including minutes from shareholder meetings, resolutions, and stock certificates.

Takeaway

S-corporations are one of the easiest ways to form an auto business. They allow you to minimize your tax liability, save on taxes, and attract investors. If you’re looking for a way to incorporate your business without having to deal with all of the red tape that comes with forming an LLC or corporation, then this is the option for you!

If you’re still not convinced about forming an S-corporation for your car buying company, keep reading. We’ll break down everything from what it means when someone says they’re in a partnership or a corporation (and why it matters) to how much money each type can save on taxes—and more importantly: how much money YOU will be saving once all is said and done!

Conclusion

We hope this article has been helpful for you as you consider forming an S-Corporation for automobiles. The benefits of this type of business entity can be significant, especially if your company is focused on selling and leasing cars. With the right legal assistance from an experienced attorney or CPA, forming this type of corporation can be a straightforward process that takes no more than a few weeks from start to finish.