How to Start an S Corp in Iowa

Starting an S corporation (S corp) in Iowa is easy, and electing an S corp tax designation could potentially save your business money in taxes. Our guide will walk you through the process of starting your Iowa S corporation and provide you with tips on maintaining your S corp.

Want to form an S corp elsewhere? Check out our other How to Start an S corp guides to learn more.

We recommend using a professional formation service like Tailor Brands to get your S corp up and running in no time.

Factors to Consider Before Starting an S Corp in Iowa

Before forming an S corp, you have to consider the following factors:

  • Is an S corporation the best strategy for your business?
  • S corporation restrictions
  • Are S corp tax advantages right for you?

Is an S Corporation the Best Strategy for Your Business?

For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.

S Corporation Restrictions

S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read our What Is an S Corporation guide for full details.

Are S Corp Tax Advantages Right for You?

An S corporation is a tax designation that can be elected by an LLC or corporation. With an S corp, business owners are considered employees of the company and must receive a reasonable salary. Since all S corps technically have employees, the s corp must run payroll. 

In order to benefit from a Iowa S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take large distributions in addition to their salary.

To learn more about the tax advantages of an S corp, read our LLC vs. S corp guide and take a look at our S corp tax calculator.

Businesses that elect S corp status will need to hire payroll and accounting services.

Payroll Services Review | Accounting Services Review

How to Form an Iowa S Corp

There are two main ways to start an S corp:

  • By forming an LLC and electing S corp tax status from the IRS when you request your employee identification number (EIN)
  • By forming a corporation and electing S corp status from the IRS

We recommend not starting a corporation with the S corp tax status because the S corp negates all of the benefits of a corporation.

Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.

Steps for Forming an LLC and Electing S Corp Status in Iowa

Starting an Iowa LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Tailor Brands to guide you through this process.

There are five basic steps to start an LLC and elect S corp status:

Step 1: Name Your LLC

Step 2: Choose a Registered Agent

Step 3: File the Certificate of Organization

Step 4: Create an Operating Agreement

Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status

Step 1: Name Your LLC

Choosing a company name is the first and most important step in starting your LLC in Iowa.

Be sure to choose a name that complies with Iowa naming requirements and is easily searchable by potential clients.

1. Follow the naming guidelines for an Iowa LLC:

  • Your name must contain one of the following terms or abbreviations: limited liability company, limited company, L. L. C., LLC, L. C., or LC. “Limited” may be abbreviated as “Ltd.,” and “company” may be abbreviated as “Co.”

  • Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).

  • Certain restricted words (e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual to be part of your LLC.

  • Your name must be distinguishable from any existing business in the state. This includes Iowa reserved names.

You can also read the Iowa state statute about LLC naming guidelines for more information.

2. Is the name available in Iowa? You can use the business entities search on the Iowa Secretary of State website to see if your desired LLC name is available.

3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.

Find a Domain Now

Step 2: Choose Your Iowa Registered Agent

You must elect a registered agent for your Iowa LLC.

An LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Certificate of Organization.

Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.

Step 3: File the Iowa LLC Certificate of Organization

The Iowa Certificate of Organization is used to officially register an LLC.

File Your Iowa Certificate of Organization

OPTION 1: File Online With Iowa Fast Track Filing

File Online

- OR -

OPTION 2: File by Mail or by Fax

Read Instructions


State Filing Cost: $50 (Nonrefundable)

Mailing Address:
Lucas State Office Building
321 E. 12th St.
Des Moines, IA 50319

Fax: (515) 242-5953

Step 4: Create an LLC Operating Agreement

An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.

For more information, read our Iowa LLC Operating Agreement guide.

Our operating agreement tool is a free resource for business owners.

Step 5: Get an EIN and Complete Form 2553 on the IRS Website

An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.

EINs are free when you apply directly with the IRS.

Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.

Visit our Form 2553 Instructions guide for detailed help with completing the form.

This is the form to elect S corp tax status for your LLC:

Screenshot of IRS online EIN application.

Ready to start saving on your taxes?

We recommend using a formation service to start your Iowa S corp for you, so you can focus on the things that matter most - growing you business.

VISIT TAILOR BRANDS

Keep Your Iowa S Corp Compliant

After you’ve elected an S corp tax designation for your Iowa business, you need to register for Iowa state business taxes and be sure to file your biennial report every two years. It’s important to follow state laws in order to keep your business in good standing.

Iowa S Corp Biennial Report

Your Iowa S corp must file a Biennial Report with the Iowa Secretary of State. This report allows you to inform the state of Iowa about any changes to your business. Your biennial report is due by April 1st every other year. For example, if you formed your business in an even-numbered year, then you must file every even-numbered year. 

There is a fee to file this report, and even if your business is not profitable, you are still required to file with the Secretary of State. Failure to file may result in the state dissolving your business.

Visit our step-by-step Iowa Biennial Report guide for more information.

Iowa S Corp Taxes

S corporations benefit from pass-through taxation, meaning the business’s profits pass-through to S corp owners’ individual tax returns. S corp owners make money from their reasonable salary and distributions, and Iowa S corp owners can expect to pay the following taxes:

Federal Self-Employment Taxes

Self-employment taxes cover social security and medicare. The self-employment tax rate is 15.3%, and money you take as salary will be subjected to the self-employment tax. However, distributions are not subjected to this tax.

Federal Income Taxes

Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets as well as the percent owed will change each year. Both your salary and distributions are subjected to federal income tax.

Iowa Income Taxes

Iowa income taxes range from 0.3% to 8.53%. In addition to this, some local jurisdictions also have an income tax. While Iowa’s gradual tax rate is not excessive, it is also not low when compared to other states. Some states have an income tax rate of 0% and others have a rate of over 10%.

Register for Iowa Business Taxes

In order to pay Iowa business taxes, you will need to register with Iowa’s Department of Revenue.

Register for Iowa Sales Tax

You will need to register with the Iowa Department of Revenue to receive a Sales Tax Permit and Tax ID Number.  Visit the Iowa Department of Revenue’s website to learn more.

Iowa Sales and Use Tax

Iowa has a statewide 6% sales tax, and many local jurisdictions have an additional sales tax, but the state of Iowa caps local sales tax at 1%. 

Additional State Taxes

Depending on your business’s industry, number of employees, and location, you may owe additional state taxes to Iowa’s Department of Revenue.

Iowa business owners may be responsible for paying some of the following taxes and fees:

  • Contractor registration fee
  • Fuel tax
  • Motel tax
  • Estate tax
  • Unemployment tax

Visit Iowa’s Department of Revenue website for more information.

Iowa Local Taxes

Local jurisdictions may have their own local laws and permits that impact your business. Whether you live in Des Moines, Iowa City, or a smaller town, be sure to research how your local jurisdiction’s laws impact your business operations.

Start an Iowa S Corp FAQ

What is an S corp?

An S corporation (S corp) is a tax designation for which an LLC or a corporation can apply.

Are taxes for LLCs and S corps the same?

No. The default taxes for an LLC and taxes for an S corp are not the same.

With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.

With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.

With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.

Both LLCs and S corps benefit from a provision in the Tax Cuts and Jobs Act of 2017 that allows qualifying owners of pass-through entities to deduct 20% of qualified business income (QBI) from their tax returns. However, for S corps, the deduction doesn’t apply to profits paid out as wages.

What is a reasonable salary for an S corp?

S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.

What is a distribution?

A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.

Can I still use my DBA name if I elect to be an S corp?

LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.

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