How to Start an S Corp in Indiana
People often consider Indiana as one of the best states in the country for small businesses. It has a lot to offer entrepreneurs, including abundant business resources, low taxes, access to a highly skilled workforce, and affordable real estate.
Knowing where to start to turn your dream of owning a business into reality can seem challenging. One of the first steps in the initial stages of your entrepreneurial journey involves choosing how to structure your business. If you elect to form an S corporation (S corp), you can save a significant amount come tax season and reduce the paperwork burden many larger corporations have to face.
This guide will walk you through the process of setting up your business as an S corp in Indiana. It also covers everything you must do on an annual basis to 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.
We recommend using a professional formation service like Northwest to get your S corp up and running in no time.
Factors to Consider Before Starting an S Corp in Indiana
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 Indiana 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.
How to Form an Indiana 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 Indiana
Starting an Indiana 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 Articles 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 Indiana.
Be sure to choose a name that complies with Indiana naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for an Indiana LLC:
- Your name must include the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.).
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- You must have approval from the Indiana Department of Financial Institutions to use the word “bank” (or any variation) in your LLC’s name.
- Your name must be distinguishable from any existing business in the state. This includes Indiana reserved business names.
You can also read the Indiana state statute about LLC naming guidelines for more information.
2. Is the name available in Indiana? You can use the business search on the Indiana INBiz 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.
Find a Domain Now
Step 2: Choose Your Indiana Registered Agent
You must elect a registered agent for your Indiana 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 Articles 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 Indiana LLC Articles of Organization
The Indiana Articles of Organization is used to officially register an LLC.
File Your Indiana Articles of Organization
OPTION 1: File Online With Indiana INBizFile Online
- OR -
OPTION 2: File by MailDownload Form
State Filing Cost: $95 online and $100 by mail, payable to the Secretary of State (Nonrefundable)
Secretary of State Business Services Division
302 W. Washington St.
Indianapolis, IN 46204
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 Indiana 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:
Keep Your Indiana S Corp Compliant
After forming your business and electing the S corp tax designation, you’ll want to make sure you keep it in good standing by following all state and local laws. This requires filing a Business Entity Report with the state every two years as well as paying both federal and local taxes.
Indiana S Corp Business Entity Report
Every two years, your S corp must file a Business Entity Report with the Indiana Secretary of State. This report is due at the end of the month in which you originally registered your business. If you formed your business in October 2017, for example, you’ll need to file a business entity report by October 31 of every odd-numbered year.
Read our step-by-step Indiana Business Entity Report guide to learn more about filing your report.
Indiana 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 Indiana 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.
Indiana Income Taxes
Indiana has a flat 3.23% income tax rate. Many local jurisdictions levy an additional income tax rate on top of this. Compared to other states, Indiana’s 3.23% statewide income tax rate is fairly low.
Register for Indiana Business Taxes
Before you begin doing business in the state, you must register your business for Indiana state taxes.
Indiana Sales and Use Tax
Indiana has a 7% statewide sales tax. Unlike some other states, local jurisdictions in Indiana don’t levy additional sales taxes on top of this.
Additional State Taxes
The Indiana Department of Revenue oversees taxation for the state. Depending on your business’s location, number of employees, and industry, you may have to register for additional state-specific permits and taxes.
Some examples of these additional state taxes and fees include:
- Alcoholic Beverage Tax
- Fireworks Tax
- Gasoline Tax
- Public Utility Tax
- Special Fuel Tax
Visit the Indiana Department of Revenue website to learn more.
Indiana Local Taxes
Regardless of your business’s location in Indiana, local jurisdictions may have their own laws that can impact how your business operates. Make sure to research local laws and regulations to ensure your business complies with them.
Start an Indiana S Corp FAQ
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.
Although there’s no perfect place for you to start your business, you should consider setting it up where you plan to operate. Forming an S corp in Indiana can prove beneficial because the reduced tax burden means you can invest more money into driving your business’s growth.
If you already set up your business as an LLC, you’ll have the opportunity to file an additional form to elect S corp status. Because the process is nearly identical, the change is simple. As long as your business meets the requirements for an S corp, you just need to file Form 2553 with the IRS.