FILING A FOREIGN QUALIFICATION TO DO BUSINESS OUT OF STATE
If you’d like to learn more about foreign qualifications or File S Corp Tax Election, contact the experts at The Business Hatchery LLC of Dallas, TX. Give us a call today at 972-371-9594
Your company is growing outside of your immediate area. Or perhaps you own an online store with fulfillment hubs spread across several cities. This can imply that you’re conducting business in a “foreign” country. How do you behave? We have all the information you need to know about what it means to conduct business in another state and how to complete the necessary papers to be legitimate.
Therefore, you must be granted the appropriate rights to conduct business there when your company is based in or operates within a state other than where it was first incorporated. This means that you must acquire a Certificate of Authority.
Foreign Qualification Basics

WHAT IS A “FOREIGN QUALIFICATION?”
The procedure for registering your business to conduct business in another state is called a “foreign qualification.” A corporation or LLC is regarded as “domestic” in the state where it was incorporated and “foreign” in any additional states where it wishes to conduct business. You receive a Certificate of Authority when you submit a Foreign Qualification, which grants you legal authority to conduct business in the state. In each state where a corporation or LLC plans to operate, a Foreign Qualification must be filled out.
HOW TO CLOSE AN LLC OR CORPORATION
What does “doing business” in a state entail? Let’s talk about the actions that show you are carrying on business in another state. Essentially, you will probably be seen as a “foreign” entity that needs to register if your actions in a state go beyond routine transactions, such as making management choices. There are, however, a few straightforward guidelines that can be used to separate the “doing business” minors from the majors.
- First, the company would have a physical presence in the state. This refers to the existence of an office, store, or warehouse that services or solicits residents of that state in any form. It could also refer to having employees or even bank accounts in a state.
- Second, if your company has to pay state taxes in a particular locale, it will be tagged as “doing business” in a state. Taxes are assessed when a company sells directly from a state or upholds many contracts in a state.
If your business fits these criteria, you could benefit from filing a Foreign Qualification with us.
WHAT IS A CERTIFICATE OF AUTHORITY?
A Certificate of Authority is an official document that permits you to operate your business in a state other than where your corporation was formed. If a company neglects to file a Foreign Qualification and receive a Certificate of Authority, it does not have legal standing or authority to transact business within that state. Every state has different rules regarding what constitutes transacting business. Not following the rules could affect your business’s Certificate of Good Standing, which you need to get a business loan, renew your business license, or file your business taxes. It can be cumbersome and time-consuming to file a Certificate of Authority in every state where you want to do business, which is why The Business Hatchery has simplified the process. Complete our online Foreign Qualification form, and we’ll do the paperwork for you.

HOW DOES THE FOREIGN QUALIFICATION PROFESS WORK?
Every process has paperwork and proper steps to follow. To give you an understanding of what we’ll be doing on your behalf, let’s review the process below:
- Name Search: Your corporation’s name will be compared to the database in each state to ensure no other company is using it. Hopefully, there will be no contradiction, but if there is, you’ll be asked to operate under a fictitious or assumed name. If you’d like to conduct your name search for your LLC, we’ve created How to Search & Choose Your Business Entity Name in all 50 States.
- Registered Agent: You must select a registered agent in that state.
- Certificate of Authority: Finally, you register for the right to do business in the state. This is similar to the incorporation process and requires some paperwork and fees to be submitted.
PREPARE AND FILE AN S CORPORATION TAX ELECTION WITH FORM 2553
If you want to reduce the amount of tax you pay on your LLC earnings, an S Corporation Tax Election (form 2553) is a necessity. This tax election tells the Internal Revenue Service to tax your LLC business as an S Corporation, which could reduce the amount of income on which you need to pay self-employment tax (including Social Security, Medicare, and FICA). This can substantially reduce your tax bill with only a slight increase in administrative overhead for you and your accountant.
HOW LLCS ARE NORMALLY TAXED
Regarding the amount of tax you owe the federal and state government, your income from an LLC is usually taxed similarly to that of sole proprietorship businesses. For a small, one-person LLC, this typically works as follows…
- Your business earns revenue.
- You deduct any allowable business expenses.
- The amount remaining is your business profit, which you pay to yourself
- You pay a self-employment tax of around 15 percent on any profits
- You pay federal tax at various income bands on any profits
- You pay state tax on any profits
- An S Corporation Tax Election reduces your tax in step 4, self-employment tax. It has no impact on any other taxes.
AN EXAMPLE OF HOW AN LLC FILING AS AN S CORPORATION CAN SAVE MONEY
Self-Employment Tax as an LLC
Under a standard LLC tax arrangement where the income “flows through” to your 1040 tax return and business schedule C, you would pay self-employment tax on all that $90,000. At approximately 15 percent, the tax on that money would be $13,500. You would still pay standard federal and state taxes on any earnings.
Payroll Tax as an S Corporation
If you choose to be taxed as an S Corporation, you could say that your salary is $50,000 and take the other $40,000 out of your business as a distribution. You would pay standard payroll tax on that $50,000 for around $7,500. You would not pay payroll or self-employment tax on the $40,000 distribution, saving you around $6,000. You would still pay standard federal and state taxes on both your salary and your distribution.
CHECK THE SAVINGS YOURSELF WITH OUR S CORPORATION TAX CALCULATOR
The S Corporation tax calculator lets you choose how much to withdraw from your business each year and how much you will take as salary (with the rest as a distribution). It will then show you how much money you can save in taxes.
Use our S Corporation Tax Calculator to view your potential tax savings.
ASSIGNING A FAIR SALARY
A critical part of the S Corporation Tax Election is that you must pay yourself a fair salary, which the IRS defines as “reasonable compensation.” If you do not, the IRS could audit you and levy taxes and penalties. For example, you cannot pay yourself a salary of $10,000 and take $80,000 in distributions. When setting a fair salary, look at what full-time roles similar to yours are paying someone with similar expertise and experience and use that as a baseline. Speak with your accountant or attorney for more information.
The S Corporation tax calculator lets you choose how much to withdraw from your business each year and how much you will take as salary (with the rest as a distribution). It will then show you how much money you can save in taxes.
Use our S Corporation Tax Calculator to view your potential tax savings.
HOW DO YOU GET AN EIN? APPLY FOR AN EIN ONLINE
There are a couple of ways you can file form 2553
File Form 2553, S Corporation Tax Election Yourself
If you want to complete the filing process yourself,
here are the steps you need to follow:
- Go to the Internal Revenue Service website
- Find the section on S Corporation Tax Elections
- Download form 2553
- Gather the required information for form 2553 and fill it in
- Send the form back to the IRS, typically by mail or fax
- Wait for notification of acceptance of your tax election
In need of an experienced business consultant? Contact us today by calling 972-371-9594.