Business Formation and Entity Selection

The entity you choose when you start a business affects your taxes, your paperwork and sometimes your options years later. Business formation and entity selection means working out which structure fits your plans, getting the tax registrations right from day one, and making elections on time. Your attorney prepares the legal documents; we handle the tax and accounting setup. We help founders in Naperville, Aurora, Chicagoland and every state.

The main choices

For federal tax, a single-member LLC is disregarded as separate from its owner, and a multi-member LLC is a partnership unless it elects otherwise. An LLC can file Form 8832 to be taxed as a corporation, generally effective no more than 75 days before the filing date or 12 months after it. A single-member LLC is still a separate entity for employment taxes. See LLC tax classification and entity selection.

Making the S election

An LLC or corporation elects S status on Form 2553, signed by every shareholder. The company must be domestic, with no more than 100 shareholders and one class of stock. Shareholders must be individuals, certain trusts and estates, or certain exempt organizations, and no nonresident alien may be a shareholder. That matters to founders living abroad, and to anyone whose U.S. tax residency is uncertain.

Timing: file no more than 2 months and 15 days after the start of the tax year the election takes effect, or any time during the preceding year. For a new calendar-year company whose first tax year begins on January 7, the deadline is March 21. If the date is missed, relief under Revenue Procedure 2013-30 is generally available within 3 years and 75 days of the intended effective date when there was reasonable cause, but not every case qualifies. S status also means running payroll for working owners. See payroll for S corporation owners.

EIN and registrations

A federal EIN is free, so avoid sites that charge for it. Domestic applicants can apply online when the responsible party has a Social Security number or ITIN; applicants whose principal place of business is outside the U.S. apply by phone, fax or mail. After the EIN, most companies register for state withholding and unemployment insurance, sales tax where applicable, and local licenses.

Illinois. Illinois LLCs are formed with the Secretary of State, must keep a registered agent with an Illinois street address, and must file an annual report, generally before the first day of the month in which the LLC was formed. The state's current rules and fees control, so we confirm them at filing. Illinois also charges a 1.5% replacement tax on income of partnerships and S corporations taxable to Illinois, and lets them elect to pay income tax at 4.95% at the entity level. See our Illinois page. Doing business elsewhere may require registering in those states as a foreign entity; see multi-state tax.

Nonprofits. A charity or religious organization is usually formed first as a state nonprofit corporation, then applies to the IRS for recognition, most often as a 501(c)(3), on Form 1023-EZ or the full Form 1023 (submitted online at Pay.gov). Exemption is the IRS's decision, not something we can promise. See nonprofits and religious organizations.

Beneficial Ownership Information (BOI)

FinCEN's March 2025 interim final rule exempted U.S. companies and U.S. persons from BOI reporting, and a final rule effective August 14, 2026 makes those exemptions permanent. Companies formed in the U.S. do not file. Only entities formed under foreign law and registered to do business in a U.S. state or tribal jurisdiction remain reporting companies, and they report their non-U.S. beneficial owners. Older articles saying a U.S. LLC must file are out of date, though some states have their own disclosure rules. See BOI reporting.

Who does what

Operating agreements, articles, bylaws and shareholder or partnership agreements, and any advice on liability or ownership, come from your attorney. We are a CPA firm, not a law firm, and do not give legal advice. We work with your attorney on the tax provisions: allocations, owner pay, exit terms and the tax election. If you are not a U.S. citizen or permanent resident, ask an immigration attorney how owning or working in a company affects your status.

How an engagement works

1. Consultation on what the business does, who owns it, where it operates and how it will be financed.
2. Written engagement agreement stating the scope, what we deliver, what the attorney handles and how fees are determined. Work begins after you sign.
3. Information gathering: owner residency, planned capital, expected income and state activity.
4. Analysis comparing two or three structures, with tax, payroll and compliance effects.
5. Setup. After you and your attorney decide, we prepare the EIN application, elections and state registrations, and set up the books and payroll.
6. Follow-up: an annual filing calendar and a review when something changes.

Common problems we fix

• An LLC that should have elected S status but never filed Form 2553, or an election by an ineligible shareholder.
• An owner paid through distributions only, with no payroll.
• A business that outgrew its entity or needs a different structure for investors.
• Missing state registrations and annual reports.

How we can help

We can compare structures before you form, fix an election that went wrong, or set up tax accounts and books from day one, together with our bookkeeping and payroll services. We meet in person in Naperville and Aurora or work remotely. Contact us to start.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.