How do I start an S-Corp in Illinois? What are the benefits?

Question

I am independent insurance agent for two companies. Both pay me as a 1099 employee. Another agent suggested I form an S-Corp for tax purposes and pay myself a salary and then pay all my bills (foo, clothes, entertainment, rent, car) this way.Any CPA's or S-Corp people with an opinion. Thanks!

Answer 1

S-corp is a Federal Income Tax designation, and has nothing to do with forming the corporation. You form the corporation the same way as any other Illinios corporation and then elect S-corp status on your first Federal tax return.

However ... the IRS is wise to corporations formed for the purpose of transforming personal, non-deductible expenditures into tax deductions. Filing a return that does so without good, documented business reason is called tax fraud. Food, clothes, and non-office rent, taken as deductions, would almost certainly trigger this when the IRS catches up to you.

There is even a special IRS category called a personal service corporation into which your enterprise might fall. Rules for a PSC are more stringent than those for an ordinary S-corp.

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beyond this, you need to find and consult a proper professional tax advisor. Expect to pay a fee. If you are very successful, this may be advisable and well worth doing.

I expect that more ordinary blokes will find that the fees are higher than the taxes saved and benefits received.

Answer 2

The paperwork is handled by the Secretary of State in your state of residence. There are tax advantages to having an S corp rather than regular corp or sole proprietorship.

The IRS does keep an eye to insure that the benefits are not used fraudulently. Food and entertainment connected with your business is one thing, however, doesn't include other meals.

Answer 3

The "S" designation is not granted by the states but, rather, by the IRS, a federal agency. You must first form an Illinois for-profit corporation ("C" corp), and then fill out and submit the required application form for S-status to the IRS. Forming the corp is easy, but you might want a lawyer or accountant to help you with the "S" application form.