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Last Updated: 1/17/24
There are so many decisions to make when you’re starting a new business. One important decision to think about is what type of tax structure to choose. An S Corp in Big Sky Country is certainly something to consider.
S Corporations are often confused with formal entity structures like a corporation or limited liability company (LLC). But an S Corp is a federal tax election that could help you save on your taxes. You can find lots of helpful information about how S Corporations work on our S Corporation information page.
Just because the S Corp designation is beneficial for many doesn’t mean it works for every business owner. It’s good to know the pros and cons of this tax election to figure out if it’s the best for your particular business venture. One of the first things to know about starting a corporation is that it’s a C Corporation by default until you file the right paperwork and follow the right rules to make it an S Corporation.
The biggest difference between S Corporations and C Corporations is how they pay taxes. An S Corporation is a business entity that has elected to pass its corporate income, losses, credits, and deductions to its shareholders or members to include on their personal income taxes.
C Corporations are separately taxable entities and are subject to double taxation. Income is taxed at the corporate level and again on the individual tax returns of members or shareholders. C Corporations can also issue more stock than S Corporations.
To create an S Corporation, you have to form a business that falls within the limitations identified above. You must also file Form 2553 with the IRS not more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding that the election is to take effect. There are exceptions to the timeline if specific circumstances have prevented you from making a timely election.
S Corporations are a common election for small businesses. An S Corporation election allows income, losses, deductions, and credits to pass through to members or shareholders to be taxed at their personal income tax rate without being taxed at the corporate level.
The first step in setting up your Montana S Corp is to form your Montana business with the Secretary of State by submitting all the proper paperwork to meet the filing requirement. We can help with that. Our Montana Corporation Formation Service and Montana LLC Formation Service simplify the process of getting your business started.
Once you have completed the formation process, we are happy to support your entrepreneurial ventures with business tools and services designed to make running and growing your own business a little easier.
For detailed formation steps, see our Montana LLC formation guide.
For detailed formation steps, see our Montana Corporation formation guide.
Filing Form 2553 with the IRS is the final step to complete your business filings and elect an S Corporation tax structure. You will need to obtain your EIN first because it will be needed for you to complete the final business requirements to file an S Corp in Montana. Corporations will automatically default to C Corporations upon formation unless you elect S Corp status.
LLCs will need to file Form 8832 to elect corporate taxation before filing Form 2553.
Though they are a great option for many businesses, S Corporations do have some limitations. The IRS requires your business to meet certain requirements to elect Montana S Corp status including:
If you’re concerned about whether your business fits these requirements or if this is the right tax structure for your company, it’s a good idea to speak to a financial professional.
There are some great reasons to form a Montana S Corp, but there are also a lot of things to consider. Here are some of the pros and cons.
There is a lot to think about. Some of the benefits of an S Corp include:
Tax liability is a big concern for a lot of business owners. S Corporations address that concern with pass-through taxation. Instead of being taxed at the corporate level and personal level, taxes pass through to individual income taxes of the shareholders or members.
The type of business you have may impact whether a Montana S Corp is right for you. An S Corp can involve:
Double taxation is a concern for a lot of business owners, but may not be an issue for your particular type of business. If so, the cons of an S Corp may outweigh the pros.
A limited liability company can elect to be an S Corporation. Many LLCs find this beneficial because corporations often require more formalities than starting an LLC. Learn more about LLCs and taxation on our Tax Information for Limited Liability Companies page.
If you’re ready to form your S Corporation, we are here to help. Making the election at the same time as forming your LLC or corporation will simplify the process. We are here to help support you from formation to compliance and maintenance so that you can spend more time focusing on growing your business.
Whether you’re in Helena or Missoula, our products and services are here to help you at any stage of your entrepreneurial journey.
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Instead of being taxed at the corporate and personal level, taxes pass through to its shareholder and members at their individual income tax rates. S Corps also allow you to use the cash method of accounting.rnrn
There is no need to identify your LLC as an S Corp in the company name or on marketing material, but you must meet all IRS filing requirements.rnrn
Choose a name that reflects the personality of your company while ensuring your purpose is clear. Adhere to all state naming requirements and limitations.rnrn
S Corporation election allows income, losses, deductions, and credits to pass through to its members or shareholders to be taxed at their personal income taxes. It’s best to consult a tax professional to ensure you correctly file taxes for your business.rnrn
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.
Montana Business Resources
How to File an S Corp in Your State
Ready to Start Your Montana S Corp?