How to Start an S Corp in Oregon
Opening a new business in Oregon can provide many benefits — and save you a lot of money in taxes. Oregon has a growing business economy, a highly educated and skilled workforce, and business incentives that can help fuel the success of your new venture.
Electing to have the Internal Revenue Service (IRS) tax your Oregon business as an S corporation (S corp) can save you even more money come tax season. Read on to learn how to form an S corp in Oregon and then keep it compliant with all state and local laws.
Not in Oregon? Check out our other How to Start an S Corp guides to learn more.
Recommended: If you have at least $60,000 in net earnings, an S corp may offer tax advantages. Let Northwest start your S corp today.
Factors to Consider Before Starting an S Corp in Oregon
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 Oregon 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.
For a Free Consultation with a Tax Professional
How to Form an Oregon 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 Oregon
Starting an Oregon 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 Oregon.
Be sure to choose a name that complies with Oregon naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for an Oregon LLC:
- Your name must include the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.).
- Your name cannot include the following:
- cooperative, corporation, corp., incorporated, Inc., limited partnership, L.P., LP, Ltd., limited liability partnership, L.L.P., and LLP.
- Your name may include the following special characters:
- asterisk (*); “at” sign (@); backslash (/); left brace ( { ); right brace ( } ); caret (^); dollar sign ($); “equal to” sign (=); “greater than” sign (>); “less than” sign (<); number sign (#); percentage sign (%); plus sign (+); tilde (~); and underscore (_).
- Your name may include the following punctuation:
- apostrophe ( ‘ ); left bracket ([ ); right bracket( ]); colon (:); comma (,); dash or hyphen (-); exclamation point (!); left parenthesis (( ); right parenthesis ( ) ); period (.); question mark (? ); single quote mark (“ ); double quote mark ( “ ” ); semicolon (;); and slash ( / ).
- Your name cannot imply in any way that the business is an agency of the state or any of its political subdivisions without approval.
- 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 Oregon reserved names.
- You can read general business naming rules on the Secretary of State’s website.
You can also read the Oregon state statute about LLC naming guidelines for more information.
2. Is the name available in Oregon? You can use the business name search on the Oregon 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.
Step 2: Choose Your Oregon Registered Agent
You must elect a registered agent for your Oregon 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 Articles 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 Oregon LLC Articles of Organization
The Oregon Articles of Organization is used to officially register an LLC.
File Your Oregon Articles of Organization
OPTION 1: File Online With the Oregon Business Registry
File Online- OR -
OPTION 2: File by Mail
Download FormState Filing Cost: $100, payable to the Corporation Division (Nonrefundable)
Mailing Address:
Secretary of State, Corporation Division
255 Capitol St. NE
Suite 151
Salem, OR 97310
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 Oregon 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:
Ready to start saving on your taxes?
We recommend using a formation service to start your Oregon S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your Oregon S Corp Compliant
After you get your Oregon S corp up and running, you’ll want to ensure it remains in good standing with the state. That’ll require you to stay up to date with your taxes, file an annual report, and follow all state guidelines and laws.
Oregon S Corp Annual Report
Oregon requires businesses to file an annual report — also known as a business renewal — with the Oregon Secretary of State. This report provides updated information to the state each year, such as details about who owns the business, its address, and its contact information. Your business must file its annual report by the anniversary date of your original business formation filing with the state of Oregon.
Visit our Oregon Annual Report guide for a step-by-step overview of the filing process.
Oregon 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 Oregon 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.
Oregon Income Taxes
Oregon has a graduated income tax rate, ranging from 4.75% to 9.9%. Some jurisdictions in the state also collect local income taxes.
Opening a business in a state with a graduated income tax can prove advantageous because your business will pay the income tax rate that corresponds with its total income in a given tax year. The higher your income, the higher your income tax rate. But, you’ll pay less tax in years when your business earns a lower income.
Oregon Sales and Use Tax
One key benefit of starting your business in Oregon is that the state has no sales and use tax. That can save you a lot of money in the overall cost of running your S corp. Despite its lack of a sales tax, Oregon does have other taxes your business may need to pay to remain compliant.
Additional State Taxes
The Oregon Department of Revenue provides details on a number of state-specific taxes that may apply to your business. Some examples include:
- Bicycle Excise Tax
- Tobacco Products Tax
- Insurance Excise Tax
- Amusement Device Tax
- Vehicle Privilege and Use Tax
Visit the Oregon Department of Revenue website for more information.
Oregon Local Taxes
In Oregon, local municipalities may levy their own taxes on businesses. Check with your local government to ensure your business remains compliant and up to date with all local taxes.
Start an Oregon S Corp FAQ
An S corporation (S corp) is a tax designation that an LLC or a corporation can elect.
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.
LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.
You can form a business in a wide variety of industries within Oregon and then elect S corp status for it to benefit from the associated tax savings. Whether you launch a company in the outdoor industry, open a restaurant, or offer business services, you just need to ensure your company meets the IRS’s requirements to qualify for S corp status.
These requirements include:
- A maximum of 100 shareholders
- Shareholders must be private individuals and legal residents of the United States
- The business may only issue one class of stock
While Oregon may have a higher income tax rate than some states, it offers many benefits and incentives to entrepreneurs who form S corps within the state. With its great location along the West Coast, access to major tech industries in neighboring states, and areas that boast a better cost of living, Oregon can provide a great place to elect S corp status in order to save your business money on its taxes.