Forming an S Corp in Texas

Forming an S Corporation in Texas involves both state-level entity setup and a federal election with the IRS. Gray & Associates CPA makes the process simple by handling the paperwork, deadlines, and compliance steps so you can start saving sooner.

Business Entity Formation

Choosing your path to S Corporation status

The first step is creating a legal entity in Texas. You can either form a new Texas corporation or register an LLC and later elect S Corporation tax treatment. Setting up a corporation or LLC requires filing a Certificate of Formation with the Texas Secretary of State, paying the $300 filing fee, and obtaining an EIN from the IRS. While these steps can feel daunting, our firm manages the process end-to-end, ensuring your entity is established correctly the first time.

S Corporation Election (IRS Form 2553)

Making the election official with the IRS

Once your entity is formed, you must file IRS Form 2553 to elect S Corporation status. This form is due within two and a half months of formation or the start of the tax year, though relief provisions exist for late elections. Unlike some states, Texas does not require a separate election because it has no personal state income tax. However, S Corporations are still subject to the Texas franchise tax. Gray & Associates CPA ensures your 2553 is filed properly and on time so your S Corp election is recognized without issue.

Payroll and Reasonable Compensation Setup

Establishing payroll for compliance and savings

After IRS approval, owners must run payroll and pay themselves a “reasonable salary.” This means setting up a payroll system, withholding and remitting taxes, and issuing year-end W-2s. Determining the right salary level is critical—it must satisfy IRS standards while leaving room for distribution-based tax savings. Our firm provides salary guidance based on industry benchmarks and helps clients establish payroll systems that are simple, compliant, and sustainable.

Ongoing Compliance Requirements

Keeping your S Corporation in good standing

Texas S Corporations must follow a few annual requirements, including holding shareholder and director meetings with recorded minutes, filing the annual federal S Corporation tax return (Form 1120S), and submitting the Texas franchise tax report. While these steps add some complexity compared to operating as a sole proprietor, they also come with valuable protections and tax benefits. Gray & Associates CPA provides compliance support—including minute preparation, tax return filing, and franchise reporting—so you can focus on running your business.

Texas-Specific Tips

What to know about S Corps in Texas

Texas offers an advantage over many other states: there is no personal income tax. However, the state does assess a franchise tax on businesses with gross receipts above approximately $1.23 million, with smaller businesses filing a “No Tax Due” report. Electing S Corporation status doesn’t change liability protections—you’ll still benefit from limited liability whether you operate as a corporation or LLC. Our team helps Texas business owners understand these nuances and stay compliant while maximizing their tax benefits.

Need Help Setting Up?

A turnkey S Corporation setup with Gray & Associates

Forming an S Corporation involves multiple steps, from state filings and IRS elections to payroll and ongoing compliance. By working with Gray & Associates CPA, you ensure each step is done correctly and on time. With more than 250 successful implementations across Texas, we help you get it right the first time so you can start saving thousands in taxes each year with confidence.