How to Start an S Corp in New Jersey
Starting a business is no easy feat, and figuring out how you want to structure your new venture can seem overwhelming. Small businesses in New Jersey are vital to the success of the local economy. Choosing to structure your business as an S corporation (S corp) in any of New Jersey’s diverse industries can set you up for success as well as tax savings.
This guide will walk you through the process of setting up an S corp in New Jersey. It’ll also cover everything you need to know to ensure your S corp remains in good standing with the state.
Not in New Jersey? 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 New Jersey
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 New Jersey 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 a New Jersey 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 New Jersey
Starting a New Jersey 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 six 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 Formation
Step 4: Register for State Tax Identification
Step 5: Create an Operating Agreement
Step 6: 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 New Jersey.
Be sure to choose a name that complies with New Jersey naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a New Jersey LLC:
- Your name must include the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.). "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.).
- You need approval to include any of the following restricted words in your LLC’s name:
- bank, banker, banking, blind, cemetery, citius, con-con, dba, e-com, express mail, handicapped, little league, mail, olympiad, olympia, olympian, altius fortius, olympic, olympus, realtor, trust, United States Olympic Committee, urban renewal insurance, zip code, and USPS.
- Your name must be distinguishable from any existing business in the state. This includes New Jersey reserved names.
You can also read the New Jersey state statute about LLC naming guidelines for more information.
2. Is the name available in New Jersey? You can use the business name availability search on the New Jersey Division of Revenue and Enterprise Services 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 New Jersey Registered Agent
You must elect a registered agent for your New Jersey 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 New Jersey LLC Certificate of Formation
The New Jersey Certificate of Formation is used to officially register an LLC.
File Your New Jersey Certificate of Formation
OPTION 1: File Online With the New Jersey Division of Revenue and Enterprise Services
File Online- OR -
OPTION 2: File by Mail or in Person
Download FormState Filing Cost: $125, payable to the Division of Revenue (Nonrefundable)
Mailing Address:
New Jersey Division of Revenue
P.O. Box 252
Trenton, NJ 08646
Office Address:
New Jersey Division of Revenue
33 W. State St.
Trenton, NJ 08608
Note: The application begins on Page 23 of the formation packet.
Step 4: Register for State Tax Identification
Within 60 days of forming your LLC, you must register with the New Jersey Division of Revenue and Enterprise Services for business and entity tax filings. You either do this by mail or online.
Complete New Jersey Tax Registration
OPTION 1: Register Online With the State of New Jersey
Register Online- OR -
OPTION 2: Register by Mail With Form NJ-REG
Download FormForm NJ-REG can be found on pages 17-19 of the Business Registration Packet.
Fee: None
Mailing Address:
New Jersey Division of Revenue
P.O. Box 252
Trenton, NJ 08646
Step 5: 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 New Jersey LLC Operating Agreement guide.
Our operating agreement tool is a free resource for business owners.
Step 6: 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 New Jersey S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your New Jersey S Corp Compliant
After you get your New Jersey S corp up and running, you’ll need to ensure it remains compliant with New Jersey laws and guidelines. The state of New Jersey requires businesses to file an annual report and pay New Jersey state taxes every year.
New Jersey S Corp Annual Report
While your business will be taxed as an S corp within the state of New Jersey, it must still follow the state’s business regulations. This includes filing an annual report with the state of New Jersey’s Division of Revenue and Enterprise Services.
Your annual report is due on the last day of the month in which you formed your S corp. If you formed your business in April, for example, your annual report will be due on April 30 each year moving forward. It’s your responsibility to ensure you file this report on time to avoid the dissolution of your business.
Visit our New Jersey Annual Report guide for a step-by-step overview of the filing process.
New Jersey 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 New Jersey 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.
New Jersey Income Taxes
New Jersey has a graduated income tax that imposes a higher tax rate the more your business earns. The tax rate ranges from 1.4% to 10.75%. While you may have to pay a higher income tax rate in New Jersey compared to some states, New Jersey’s proximity to major markets makes it an attractive place to start a business.
New Jersey Sales and Use Tax
New Jersey requires businesses selling taxable items to collect a sales tax of 6.635%, payable to the state in quarterly Sales and Use Tax Returns. You can find some exemptions to this tax on the back of the “Exempt Use Certificate” on the state’s website.
Additional State Taxes
Businesses in New Jersey may be subject to other state-specific taxes. Some examples of these additional taxes include:
- Admissions Surcharge
- Motor Fuels Tax
- Occupancy Tax
- Tobacco and Vapor Products Tax
Visit New Jersey’s Division of Taxation website for more information.
New Jersey Local Taxes
New Jersey cities, towns, and counties charge local taxes through property taxes, depending on if you lease or own your business property within the municipality. Check with your local municipal court for more details.
Start a New Jersey 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.
Starting a business in New Jersey will enable you to operate in a booming economy with a diverse business landscape. Whether your business is in financial services, pharmaceuticals, transportation, manufacturing, or logistics, forming an S corp in any industry can help you save a significant amount on your taxes.
New Jersey is a great state for electing S corp status if your business operates locally. While the state’s income tax rates may be higher than in other states, depending on your earnings, New Jersey sets a sliding scale to allow your business to grow. This state also provides an ideal location for your business to tap into major global markets as it expands.