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Last Updated: 3/19/24

Starting an S corporation in Maine could be a smart tax move for your business. An 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 an LLC would face self-employment taxes, but switching to an 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 an S corp in Maine, showing you how to access these tax benefits and help ensure you’re doing everything by the book.

Requirements and limitations of S Corporations

Importantly, not all entities are eligible for classification as an S-Corp. To qualify for an S Corporation election, an entity must:

  • Be a domestic corporation
  • Have only allowable shareholders, such as individuals, certain trusts, and estates
  • Have no more than 100 shareholders
  • Not be an ineligible corporation, such as certain financial institutions, insurance companies, and domestic international sales corporations
  • Have only one class of stock

So long as your business entity meets these minimum filing requirements, you are eligible to choose an S Corp election. 

What to know before creating an S Corporation in Maine

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 an S Corporation in Maine: 

What’s the difference between an S Corporation and a C Corporation?

As you consider whether to make an 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. 

What are the requirements to create an S Corporation? 

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 

How to Start an S-Corp in Maine

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.

S-Corp Election Steps for LLCs

For detailed formation steps, see our Maine LLC formation guide.

  • Step 1 – Choose a name
  • Step 2 – Choose a ME Registered Agent
  • Step 3 – Choose Directors or Members/Managers
  • Step 4 – File ME Articles of Incorporation or Certificate of Formation
  • Step 5 – Apply for S Corp status with IRS Form 2553

S-Corp Election Steps for Corporations

For detailed formation steps, see our Maine Corporation formation guide.

  • Step 1 – Name your Maine corporation
  • Step 2 – Appoint directors
  • Step 3 – Choose a Maine registered agent
  • Step 4 – File the Maine Articles of Incorporation
  • Step 5 – Create corporate bylaws
  • Step 6 – Draft a shareholder agreement
  • Step 7 – Issue shares of stock
  • Step 8 – Apply for necessary business licenses and permits
  • Step 9 – File for an EIN and review tax requirements
  • Step 10 – Submit your corporation’s first report
  • Step 11 – Apply for S Corp status with IRS Form 2553

File Form 2553 to turn the business into an S Corporation

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.

File Form 2553 with the IRS

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 an 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: 

  • No more than 2 months and 15 days after the beginning of the tax year in which the election is to take effect

OR

  • At any time during the tax year preceding the tax year the election is to take effect

For more information on when and how to file your Form 2553, visit the IRS website

Weighing the pros and cons of creating an S Corporation

So, how do you know whether to proceed as a C Corp or make an 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 an S Corp election include: 

  • Asset protection
  • Pass-through taxation
  • Tax-favorable characterization of income
  • Ability to utilize cash method of accounting

As with most things, however, there are also certain disadvantages to take into consideration. Some disadvantages of forming an S Corporation include: 

  • Higher formation and maintenance expenses
  • Tighter tax qualification obligations
  • Stock ownership restrictions
  • Closer IRS scrutiny
  • Less flexibility in allocating income and losses

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. 

Get help establishing a Maine LLC with S corp tax election

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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Maine S Corp FAQs

  • An S Corp is a type of corporation status that an entity can select for itself. Specifically, a business entity that has made an 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 an 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 an 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 an 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 an LLC or C corp elects to be taxed as an 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.

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Written by Team ZenBusiness

Form Your Maine S Corp