Unlock potential tax advantages in Maine by filing a S corporation election. Explore our guide to navigate the process seamlessly, and discover how this strategic move can benefit your company.
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Last Updated: October 15, 2024
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Starting a S corporation in Maine could be a smart tax move for your business. A S corp is a special tax designation that offers the chance for tax savings, particularly appealing for those running a limited liability company (LLC) in Maine. Usually, all the income from a LLC would face self-employment taxes, but switching to a S corp status changes things. It allows business owners to pay themselves a salary, and only this salary is subject to self-employment taxes. The rest of the business income, which you might take as profits, doesn’t get taxed in the same way, potentially offering a way to keep more of your earnings.
This guide will walk you through the process of setting up a S corp in Maine, showing you how to access these tax benefits and help ensure you’re doing everything by the book.
Importantly, not all entities are eligible for classification as a S-Corp. To qualify for a S Corporation election, an entity must:
So long as your business entity meets these minimum filing requirements, you are eligible to choose an S Corp election.
Before you decide to formally make your S Corp election, there are a few important things you need to know. For example, by default, your entity will be classified as a C Corp at formation.
Here’s some more important information you should know before creating a S Corporation in Maine:
As you consider whether to make a S Corp election or keep the default C Corp classification, it’s important to understand the primary differences between the two.
The primary difference is that S Corps benefit from pass-through taxation, while C Corps do not. Instead, C Corporations must file and pay income taxes at both the corporate level and at the shareholder level on the income taxes of the entity’s individual owners.
To create an S Corporation, you have to form a business that falls within the limitations identified above, and you have to file Form 2553 with the IRS within one of the timeframes listed above. If you are an LLC, you will need to file
Before making an S Corp election, you will need to set up an LLC or a C corporation. Not sure what type of business structure to select? Creating a detailed business plan early on can help you assess your business needs and goals to make the right decision. And when you’re ready to form your entity, we can help you with that, too.
Here are instructions for forming an LLC and a corporation in Maine.
For detailed formation steps, see our Maine LLC formation guide.
For detailed formation steps, see our Maine Corporation formation guide.
Finally, once you’ve successfully set up the legal business entity, it’s time to make your S Corp election. You must do so by filing Form 2553 with the IRS. For LLCs, however, be sure to first change your entity classification to Corporation status by filing IRS Form 8832.
Don’t forget to first get an Entity Identification Number (EIN) for your business, which we can help you do in a matter of minutes.
After you formally create your legal business entity, you can then file paperwork with the IRS to make your Maine S Corporation election.
Regardless of whether you’ve decided to form a corporation or a LLC, your next step is to file your Form 2553 with the IRS. Again, by default, your entity will be classified as a C Corp at formation. However, Form 2553 allows you to request a status change to a Maine S Corporation.
It’s also important to know when to make your S Corp election. Specifically, the IRS requires that you complete and file your Form 2553:
OR
For more information on when and how to file your Form 2553, visit the IRS website
So, how do you know whether to proceed as a C Corp or make a S Corp election instead?
Ultimately, the decision will come down to what works best for the needs of your entity. Assessing the pros and cons can help you make the best choice for your business. Common advantages of a S Corp election include:
As with most things, however, there are also certain disadvantages to take into consideration. Some disadvantages of forming a S Corporation include:
S Corp election may not be right for all businesses. Thus, be sure to carefully consider the competing pros and cons before making your decision.
The S Corporation tax calculator below lets you choose how much to withdraw from your business each year, and how much of it you will take as salary (with the rest being taken as a distribution.) It will then show you how much money you can save in taxes.
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Disclaimer: The savings estimate provided by this tool is for informational purposes only and should not be considered financial, tax, or legal advice. Actual savings may vary depending on individual circumstances and other factors. We recommend consulting with a qualified tax or legal professional before making any decisions regarding your business entity. ZenBusiness, Inc. is not responsible for any actions taken based on the information provided by this tool. Use of this tool does not establish any client relationship with ZenBusiness, Inc.
Recommended article: Form a S Corp in Massachusetts
When you’re ready to take the next steps toward forming your Maine S Corporation, we’ll be here to support you at every step along the way. From business formation to compliance and maintenance and everything in between, we have the tools and resources to help you navigate the business lifecycle from start to finish.
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A S Corp is a type of corporation status that an entity can select for itself. Specifically, a business entity that has made a S Corp election has chosen to pass its corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes.
This is often referred to as “pass-through taxation” because it allows the business entity to avoid double taxation on its corporate income. It does so by “passing” the obligation to pay income taxes on to the entity’s shareholders.
Yes, LLCs can, and often do, choose a S Corporation election. Many LLCs decide to do so due to the variety of beneficial tax advantages that come along with this type of classification.
Thus, your entity doesn’t have to be a corporation to qualify for a S Corp election.
There are many benefits associated with forgoing the default C Corp status and making an S Corporation election instead. One of the biggest advantages is the ability to avoid double taxation on the business’s income at both the entity and individual levels.
As long as you comply with the state naming formalities, you can name your Maine S Corporation nearly anything you want. However, before setting anything in stone, you should also search the Maine business entity records to make sure that you don’t select a name that another entity is already using.
There is no need to identify your LLC as a S Corp in its name. Provided that you are following the Maine naming restrictions regarding the use of “LLC” or “limited liability company,” you do not need to go any further than that. Rather, you identify your LLC as an S Corporation by filing the proper documents and tax returns at the state and federal levels.
Check out our S Corp tax guide to learn more about calculating taxes for your Maine S Corporation. If you still have questions, contact a certified tax professional for more information.
When a LLC or C corp elects to be taxed as a S corporation for federal income taxes, Maine, like most states, applies state income tax in the same way. That is, the business itself doesn’t pay federal or state income tax on the profits. The profits are usually taxed only on the personal income tax return of the individual owner or owners.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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