How to Set Up an S Corp in Texas: Formation, Form 2553, and Taxes

To set up an S corp in Texas, you form a Texas corporation or LLC with the Secretary of State, obtain a federal EIN, and then file IRS Form 2553 to elect S corporation tax treatment. The S corp itself is not a separate entity type in Texas — it is a federal tax election layered on top of a corporation or LLC, so the work happens in two places: Austin for the entity, and the IRS for the tax status.

Confirm You Qualify Before You File Anything

The IRS will reject the S election if the business fails any one of the federal requirements under 26 U.S.C. § 1361. Check these before you spend money on formation:

  • No more than 100 shareholders. Family members can sometimes count as a single shareholder.
  • Shareholders must be individuals, certain trusts, or estates. Partnerships, other corporations, and nonresident aliens cannot hold shares.
  • Only one class of stock. Differences in voting rights alone do not create a second class.

If you have a foreign owner, a corporate parent, or more than 100 investors, you will not qualify.1Office of the Law Revision Counsel. 26 USC 1361 – S Corporation Defined

Choose the Underlying Entity

Texas owners generally pick between a for-profit corporation and a limited liability company. Both can elect S corp status with the IRS. A corporation runs on a board of directors and more formal governance; an LLC is more flexible in how it is managed. The choice affects your internal paperwork and governance, not your eligibility for the S election.

Pick a Name That Will Clear the State

Your name must be distinguishable from every other active entity, reserved name, and registered trademark on file with the Texas Secretary of State. A name that is too similar will be rejected. You can check availability through the SOSDirect portal before filing.2Texas Secretary of State. Name Filings FAQs

The name must also carry a designator. A corporation needs a word like “Corporation” or “Incorporated,” or an abbreviation such as “Corp.” or “Inc.” An LLC must include “Limited Liability Company” or “LLC.”2Texas Secretary of State. Name Filings FAQs

If you are not ready to file formation documents, you can reserve a name for 120 days for $40, and renew for another 120 days at the same cost.3Texas Secretary of State. Form 501 – Instructions for Application for Reservation or Renewal of Reservation of an Entity Name

File the Certificate of Formation

The certificate of formation is what officially creates your entity under Texas law. Corporations file Form 201; LLCs file Form 202.4State of Texas. Texas Business Organizations Code Chapter 3 – Formation and Governance Whichever form you use, it must include:

  • The full legal name with its designator.
  • A registered agent with a physical Texas street address (not a P.O. box) who has consented in writing to accept service during regular business hours.5Texas Secretary of State. Registered Agents
  • Governance details. Corporations list initial directors’ names and addresses. LLCs identify whether the company is manager-managed or member-managed and list those individuals.4State of Texas. Texas Business Organizations Code Chapter 3 – Formation and Governance
  • A purpose statement. A general statement authorizing any lawful business is enough.
  • The organizer’s signature.

You can be your own registered agent if you have a Texas address, or hire a commercial service. Commercial registered agent services typically run $25 to $300 per year.

Filing Fees and Processing

The filing fee is $300 for both corporations and LLCs.6Texas Secretary of State. Business Filings and Trademarks Fee Schedule You can submit through the SOSDirect online portal, by mail to Austin, or in person.7Texas Secretary of State. Filing Options Standard processing is roughly three to five business days. Three expedited tiers took effect October 1, 2025, and each adds to the base fee:

Once approved, you receive a stamped copy of the certificate and a formal acknowledgment. A certificate of fact from the Secretary of State can serve as official proof of the entity’s existence when opening a bank account or applying for financing.9Texas Secretary of State. Copies and Certificates

Get an EIN and Set Up Internal Records

Apply for a federal Employer Identification Number through the IRS website. The application is free and produces an EIN immediately. You will need it to open a bank account, file taxes, and hire employees. The IRS recommends forming your state entity first to avoid delays.10Internal Revenue Service. Get an Employer Identification Number

If you formed a corporation, adopt bylaws and hold an organizational meeting to issue stock. If you formed an LLC, draft an operating agreement covering ownership percentages, management, and distributions. These documents are not filed with the state, but they preserve the legal separation between you and the business, and the IRS expects to see this kind of structure when it reviews the S election.

File Form 2553 to Make the S Election

With the entity formed and the EIN issued, file IRS Form 2553 (Election by a Small Business Corporation). The form asks for each shareholder’s name, address, Social Security number, and ownership details. Every shareholder must sign to show unanimous consent.11Internal Revenue Service. About Form 2553, Election by a Small Business Corporation

The Deadline Is Strict

To have the election take effect for the current tax year, file Form 2553 no later than two months and 15 days after the beginning of that tax year. For a calendar-year business, that means by March 15. For a new business, the clock starts when the entity first has shareholders, acquires assets, or begins operating, whichever comes first. Filing later usually pushes the election to the following tax year.12Office of the Law Revision Counsel. 26 USC 1362 – Election; Revocation; Termination

You can file Form 2553 by mail or fax to the IRS service center listed in the instructions, or attach it as a PDF to an e-filed corporate return.13Internal Revenue Service. Filing Requirements for Filing Status Change The IRS generally sends a CP261 notice within 60 days confirming acceptance. Save it. You will need it for future filings and to prove S corp status to banks.14Internal Revenue Service. Instructions for Form 2553

If You Missed the Deadline

Late relief is available under IRS Revenue Procedure 2013-30 if all of the following are true:

  • The entity was eligible for S corporation status during the entire period at issue.
  • The only reason it did not qualify was the late election.
  • The entity and all shareholders reported income as if the S election had been in effect.
  • No more than three years and 75 days have passed since the intended effective date, with limited exceptions.

You must also show reasonable cause for the delay. Not knowing about the deadline is not enough. File a completed Form 2553 with a reasonable-cause explanation to the appropriate IRS service center.15Internal Revenue Service. Late Election Relief

What You Owe After the Election

Reasonable Salary for Working Shareholders

Distributions from an S corp are not subject to Social Security and Medicare taxes, which is where much of the tax savings comes from. The IRS rule: any shareholder who also works for the business must first receive a reasonable salary, meaning what a comparable role at a comparable company would pay.16Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues If the IRS decides the salary is unreasonably low, it can reclassify distributions as wages and impose back employment taxes, interest, and penalties.17Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers Set up payroll before you take distributions.

Texas Franchise Tax and Annual Reports

Texas has no state income tax, but it does have a franchise tax that applies to S corporations. Every S corp formed or doing business in Texas must file an annual franchise tax report with the Comptroller. For report years 2026 and 2027, the no-tax-due threshold is $2,650,000 in annualized total revenue. Below that, you owe nothing but still must file.18Texas Comptroller. Franchise Tax

You must also file a Public Information Report (Form 05-102) each year, regardless of revenue. Both filings are due by May 15.19Texas Comptroller of Public Accounts. Texas Franchise Tax Public Information Report and Ownership Information Report

Federal Form 1120-S and K-1s

An S corporation does not pay federal income tax at the entity level. Income and losses pass through to shareholders on their personal returns. To make that work, the corporation files Form 1120-S each year and issues a Schedule K-1 to each shareholder showing their share of income, deductions, and credits.20Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation For a calendar-year S corp, Form 1120-S is due March 15, and K-1s must reach shareholders by the same date. Late filing brings a penalty for each month the return is late, multiplied by the number of shareholders.