How to Start an S Corp in Idaho
Idaho has a thriving, growing economy that’s perfect for businesses of all sizes. The state offers businesses low taxes, government incentives, and easy-to-manage regulations. In fact, entrepreneurs have named Idaho one of the best states in which to start a business.
If you plan to open a business in Idaho, consider structuring it as an S corporation (S corp). By forming an Idaho S corp, your small business can benefit from low taxes. With more money in your pocket, you’ll have the ability to reinvest in growing your business.
This guide will walk you through the process of forming your Idaho S corp and provide tips to help you keep it in good standing.
Want to form an S corp elsewhere? Check out our other How to Start an S Corp guides to learn more.
Recommended: If you have at least $60,000 in net earnings, an S corp may offer tax advantages. Let Northwest start your S corp today.
Factors to Consider Before Starting an S Corp in Idaho
Before forming an S corp, you have to consider the following factors:
- Is an S corporation the best strategy for your business?
- S corporation restrictions
- Are S corp tax advantages right for you?
Is an S Corporation the Best Strategy for Your Business?
For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.
S Corporation Restrictions
S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read our What Is an S Corporation guide for full details.
Are S Corp Tax Advantages Right for You?
An S corporation is a tax designation that can be elected by a limited liability company (LLC) or corporation. With an S corp, business owners are considered employees of the company and must receive a reasonable salary. Since all S corps technically have employees, the s corp must run payroll.
In order to benefit from an Idaho S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take large distributions in addition to their salary.
To learn more about the tax advantages of an S corp, read our LLC vs. S corp guide and take a look at our S Corp tax calculator.
For a Free Consultation With a Tax Professional
How to Form an Idaho S Corp
There are two main ways to start an S corp:
- By forming an LLC and electing S corp tax status from the Internal Revenue Service (IRS) when you request your employee identification number (EIN)
- By forming a corporation and electing S corp status from the IRS
We recommend forming an LLC because it’s simpler and more cost-effective.
Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.
Steps for Forming an LLC and Electing S Corp Status in Idaho
Starting an Idaho LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Northwest to guide you through this process.
There are five basic steps to start an LLC and elect S corp status:
Step 1: Name Your LLC
Step 2: Choose a Registered Agent
Step 3: File the Certificate of Organization
Step 4: Create an Operating Agreement
Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status
Step 1: Name Your LLC
Choosing a company name is the first and most important step in starting your LLC in Idaho.
Be sure to choose a name that complies with Idaho naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for an Idaho LLC:
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Your name must contain one of the following terms or abbreviations: limited liability company, limited company, L.L.C., LLC, L.C., or LC. "Limited" may be abbreviated as "Ltd.," and "company" may be abbreviated as "Co."
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If the LLC is a professional entity (such as a law firm), the name may include the word "professional" before the word "limited" or the letter "P" at the beginning of any of the permitted abbreviations.
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Your name cannot contain language falsely stating or implying government affiliation.
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Restricted words (such as "bank") may require approval to be used in business names.
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Your name must be distinguishable from any existing business registered with the Idaho Secretary of State.
You can also read the Idaho state statute about LLC naming guidelines for more information.
2. Is the name available in Idaho? You can use the business search on the Idaho Secretary of State website to see if your desired LLC name is available.
3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.
Step 2: Choose Your Idaho Registered Agent
You must elect a registered agent for your Idaho LLC.
An LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Certificate of Organization.
Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.
Step 3: File the Idaho LLC Certificate of Organization
The Idaho Certificate of Organization is used to officially register an LLC.
File Your Idaho Certificate of Organization
OPTION 1: File Online With the Idaho Secretary of State
File Online- OR -
OPTION 2: File by Mail
Download FormState Filing Cost: $100 online and $120 hard copy, payable to Idaho Secretary of State (Nonrefundable)
Mailing Address:
Office of the Secretary of State
450 N. 4th St.
P.O. Box 83720
Boise, ID 83720-0080
Step 4: Create an LLC Operating Agreement
An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.
For more information, read our Idaho LLC Operating Agreement guide.
Our operating agreement tool is a free resource for business owners.
Step 5: Get an EIN and Complete Form 2553 on the IRS Website
An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS.
Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.
Visit our Form 2553 Instructions guide for detailed help with completing the form.
This is the form to elect S corp tax status for your LLC:
Ready to start saving on your taxes?
We recommend using a formation service to start your Idaho S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your Idaho S Corp Compliant
After you form your LLC and elect the S corp tax designation, it’s important to keep your business in good standing by following state and local laws. This’ll require your Idaho business to file an annual report and pay state taxes each year.
Idaho S Corp Annual Report
All Idaho businesses must file an annual report with the Idaho Secretary of State. This report allows you to communicate any changes in your business to the state. Even if your business hasn’t changed in the last year, you must still file an annual report.
There’s no filing fee, and your annual report is due each year by the end of the month of your business’s anniversary. If you formed your LLC on June 10, 1997, for example, your annual report will be due every year by June 30.
Visit our step-by-step Idaho Annual Report guide for more information.
Idaho S Corp Taxes
S corporations benefit from pass-through taxation, meaning the business’s profits pass-through to S corp owners’ individual tax returns. S corp owners make money from their reasonable salary and distributions, and Idaho S corp owners can expect to pay the following taxes:
Federal Self-Employment Taxes
Self-employment taxes cover social security and medicare. The self-employment tax rate is 15.3%, and money you take as salary will be subjected to the self-employment tax. However, distributions are not subjected to this tax.
Federal Income Taxes
Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets as well as the percent owed will change each year. Both your salary and distributions are subjected to federal income tax.
Idaho Income Taxes
Idaho’s state income tax rate ranges from 1% to 6%, depending on your income. That means individuals with higher incomes could pay as much as a 6% income tax rate.
Some states have no income tax while others have income tax rates that exceed 10%. Idaho’s income tax rate falls somewhere in the middle and fairly standard.
Idaho Sales and Use Tax
Idaho has a statewide sales tax rate of 6%, and many local jurisdictions levy their own sales taxes in addition to this. The state caps local sales tax rates at 3%, however, which means the highest sales tax rate in Idaho is 9%.
Visit the Idaho State Tax Commission website to learn more about your jurisdiction’s sales tax rate.
Additional State Taxes
The Idaho State Tax Commission also oversees the collection of other state-specific taxes. Depending on your business’s industry, location, and number of employees, you may have to obtain special permits and pay additional state taxes.
Some examples of these additional taxes include:
- Beer and Wine Taxes
- Cigarette and Tobacco Taxes
- Fuels Taxes and Fees
- Mine License Tax
- Oil and Gas Production Tax
Visit the Idaho State Tax Commission website for more information.
Idaho Local Taxes
Whether your business operates in Boise, Idaho Falls, or a smaller town, each jurisdiction may have its own permits and local laws that impact how you conduct business. Make sure you know about any local laws that may impact your business’s operations and tax obligations.
Start an Idaho S Corp FAQ
An S corporation (S corp) is a tax designation that an LLC or a corporation can elect.
No. The default taxes for an LLC and taxes for an S corp are not the same.
With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.
With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.
S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.
A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.
LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.
While there’s no one-size-fits-all solution for where you should form your S corp, aim to choose the location that best meets your business needs. Usually, that’s the state where you plan to primarily operate. With Idaho’s supportive and business-friendly environment, you can benefit from starting your S corp in this state.
If you already set up your business as an LLC in Idaho and you decide you want to elect S corp status for it, you may make this change if your business meets the IRS’s requirements for S corps. The process simply requires you to file Form 2553 with the IRS.