If you’re planning an out-of-state move in the near future, don’t forget to move your S corporation along with you.
The process is not typically complicated, but there are some items to consider, especially in regards to your taxes. In this article, I will take you through the questions you should ask, and the business moves you should make in preparation for your big move.
Do I Have to Move My S Corporation?
If you’re like most of my clients, you have a completely online business. In this case, you might be wondering why it even matters if you move your S Corp. So, does it matter? Yes. If you’re doing business in a new state, then legally you must register your S Corp in that state as well.
What Are My Options for Moving My S Corp to Another State?
Basically, you have four main options for how to move your S Corp from one state to another. The best decision for your business will most likely depend upon the laws in your current and new states, but it’s important to know what all is available.
- The best option for most S Corps moving to a new state is to form a new corporation in your new state and then merge your existing corporation into the new one. By completing this merger, you will avoid most tax-related fees and penalties that come along with operating a corporation in multiple states. You will also be able to keep your same Federal Employer Identification Number (FEIN) and any credit your company has established. However, with a merger, you will need to pay more up-front costs associated with the paperwork required to open, merge, and “close” a business.
- If you have a good business reason for wanting to continue business in the state where you no longer reside, then you can continue operating your corporation in your old state by registering as a “foreign entity” in your new state. This is called “foreign qualification” or “foreign registration.” However, be aware that if you do this, you will most likely have to pay yearly fees in both states, file annual reports in both states, and maintain a registered agent in both states. These fees and additional paperwork typically deter business owners from this option and some states don’t even allow this.
- Additionally, you have the option of closing your S Corp in your old state and forming a brand new entity in your new state. This is called “dissolution and formation.” However, if you choose this option, note that you may have to complete additional paperwork and accounting since you will need to fully settle all debts and liabilities such as state taxes.
- Finally, depending upon where you’re coming from and where you’re going, you might be able to complete a “conversion” or “domestication.” If this is allowed between the two states involved in your move, then it’s your lucky day. This option circumvents opening and/or closing businesses and allows for you to file paperwork in both states that say “you’ve moved your shop.” Definitely check with the Secretary of State’s office in your current state of residence to see if this is an option for you.
How Do I Merge My Old S Corp with My Newly Formed S Corp?
Depending on the two states involved in your move, there may be some slight differences in the paperwork required. However, these are the basic steps if you choose a merger:
- First, you’ll need to contact the Secretary of State’s office in your new state of residence. Here you’ll be looking to open a new S Corporation and merge an existing S Corporation from another state. You’ll need to fill out “Articles of Incorporation” and “Articles of Merger” paperwork and obtain any needed licenses or permits. Luckily, you’ll most likely be able to get all of this done online.
- Next, you’ll contact the Secretary of State’s office in your current state to officially close your business. You’ll file “Articles of Dissolution” or a “Certificate of Termination.” Typically, all you’ll need to do is fill out the appropriate paperwork to close your business there, and it usually can all be done online. Some states will require a final tax return at that time as well. Important note: Do not dissolve your business until you have merged it into your new S Corp.
Do I Need to Tell the Feds About My S Corporation’s Move?
Yes. You’ll need to change your business address with the IRS.
Can I Get Any Federal Tax Breaks for Moving My Company to a New State?
Sorry, but due to the 2017 Tax Cuts and Jobs Act, moving is no longer a business deduction.
What If I Don’t Know Which Business Move I Should Choose?
If you still have doubts about which option is right for your S Corporation’s move to another state, then you should definitely contact a CPA for guidance. You may also want to consider working with a small business attorney to help with business formation or mergers. I highly recommend Joey Vitale of indielaw.com and Autumn Witt Boyd of awbfirm.com.
- Consider the 4 possible options for moving your S Corporation to another state.
- Consult your Secretary of State’s office for rules and regulations in your current and new states to ensure you know what you can and can’t do to move your business.
- Complete all necessary forms with both states and the IRS.