How to Start an S Corp in Oklahoma
Creating a business can seem like an overwhelming task in any state. You not only need to create a business plan, but also make decisions on what to offer, your price structure, and much more. Among all the many decisions you must make before you open a business in Oklahoma, one of the most significant involves choosing how to structure your company.
Electing to form an S corporation (S corp) in Oklahoma can save you money on your business taxes. The S corp tax designation can benefit any type of business — whether you plan to open a new restaurant or offer services to the major agricultural industries within the state.
This guide will walk you through everything you need to know about forming an S corp, including important information on how to keep your business compliant.
Not in Oklahoma? Check out our other How to Start an S Corp guides to learn more.
We recommend using a professional formation service like Northwest to get your S corp up and running in no time.
Factors to Consider Before Starting an S Corp in Oklahoma
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 an Oklahoma 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.
How to Form an Oklahoma 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 forming an LLC because it’s simpler and more cost-effective.
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 Oklahoma
Starting an Oklahoma 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 Northwest 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 Articles 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 Oklahoma.
Be sure to choose a name that complies with Oklahoma naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for an Oklahoma LLC:
- Your name must include the phrase “limited liability company” or “limited company” or one of their abbreviations (LLC, L.L.C., LC, or L.C.). The word "limited" may be abbreviated as "LTD.," and the word "Company" may be abbreviated as "CO."
- You must have approval to include the following words: savings and loan, building and loan, savings association, and savings bank.
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Your name must be distinguishable from any existing business in the state. This includes Oklahoma reserved names.
You can also read the Oklahoma state statute about LLC naming guidelines for more information.
2. Is the name available in Oklahoma? You can use the business name availability search on the Oklahoma 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 Oklahoma Registered Agent
You must elect a registered agent for your Oklahoma 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 Formation.
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 Oklahoma LLC Articles of Organization
The Oklahoma Articles of Organization is used to officially register an LLC.
File Your Oklahoma Articles of Organization
OPTION 1: File Online With the Secretary of StateFile Online
- OR -
OPTION 2: File by Mail or in PersonDownload Form
State Filing Cost: $100, payable to the Secretary of State (Nonrefundable)
Secretary of StateOklahoma Secretary of State
421 NW 13th St., Suite 210
Oklahoma City, OK 73103
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 Oklahoma 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:
Keep Your Oklahoma S Corp Compliant
After you obtain S corp status for your Oklahoma business, you’ll want to ensure it remains in good standing with the state’s laws and guidelines. Oklahoma requires businesses to stay current on local and state taxes as well as file an annual certificate — also known as an annual report — each year.
Oklahoma S Corp Annual Certificate
Oklahoma requires all businesses to file an annual certificate with the Oklahoma Secretary of State. It’s due every year by the end of the anniversary month in which you formed your business.
Filing this report helps to keep your business records up to date with the state of Oklahoma and ensures your business remains compliant. If you fail to file the report, you run the risk of the dissolution of your Oklahoma S corp.
Visit our Oklahoma Annual Certificate guide for a step-by-step overview of the filing process.
Oklahoma 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 Oklahoma 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.
Oklahoma Income Taxes
Oklahoma has a graduated income tax rate that ranges from 0% to 5%, depending on your income. A graduated income tax can benefit your business by ensuring the state taxes it at a different percentage based on its income for the year. This can enable you to save a lot of money in taxes, making Oklahoma one of the more business-friendly states with an income tax in place.
Oklahoma Sales and Use Tax
Oklahoma has a standard sales tax of 4.5% across the state. Cities and towns can levy their own sales and use tax, which they then add to the standard statewide sales tax. Check out the Oklahoma Tax Commission website for more details.
Additional State Taxes
As an Oklahoma business owner, you may need to pay additional state-specific taxes. Some examples of the other taxes that may apply to your business include:
- Alcohol and Tobacco Permits
- Franchise Tax
- Agricultural Permits
- Motor Fuel Tax
- Gross Production Tax
Visit the Oklahoma Tax Commission website for more information.
Oklahoma Local Taxes
Your business also may need to pay local taxes, depending on its location — whether that’s in Oklahoma City, Tulsa, or any of the state’s smaller towns. Check with your local municipality for more information to ensure your business complies with the local laws.
Start an Oklahoma S Corp FAQ
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.
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.
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.
Oklahoma is home to businesses in many major industries, including engineering, energy, manufacturing, oil and gas, and agriculture. Businesses in any industry can elect S corp status as long as they meet the eligibility requirements.
Electing S corp status for your business can help you save money at tax time. Oklahoma is a great state for S corps in any industry because its graduated income tax means your business’s tax rate will depend on how much it earns each year.