How to Start an S Corp in Kentucky

Starting an S corporation (S corp) in Kentucky is easy, and electing an S corp tax designation could potentially save your business money in taxes. Our guide will walk you through the process of starting your Kentucky S corporation and provide you with tips on maintaining your S corp.

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 Tailor Brands to get your S corp up and running in no time.

Factors to Consider Before Starting an S Corp in Kentucky

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 an 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 a Kentucky 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.

Businesses that elect S corp status will need to hire payroll and accounting services.

Payroll Services Review | Accounting Services Review

How to Form a Kentucky S Corp

There are two main ways to start an S corp:

  • By forming an LLC and electing S corp tax status from the IRS when you request your employee identification number (EIN)
  • By forming a corporation and electing S corp status from the IRS

We recommend not starting a corporation with the S corp tax status because the S corp negates all of the benefits of a corporation.

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 Kentucky

Starting a Kentucky 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 Tailor Brands 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 Kentucky.

Be sure to choose a name that complies with Kentucky naming requirements and is easily searchable by potential clients.

1. Follow the naming guidelines for a Kentucky LLC:

  • Your name must include the phrase “limited liability company” or "limited company" or one of its abbreviations (LLC or LC). The word “Limited” may be abbreviated as "Ltd." and the word "company" may be abbreviated as "Co."

  • Your name cannot include the word “cooperative” without approval.

  • Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).

  • Restricted words (e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual to be part of your LLC.

  • Your name must be distinguishable from any existing business name on record in the state.

You can also read the Kentucky state statute about LLC naming guidelines for more information.

2. Is the name available in Kentucky? You can use the FastTrack name availability search on the Kentucky 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.

Find a Domain Now

Step 2: Choose Your Kentucky Registered Agent

You must elect a registered agent for your Kentucky 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.

Kentucky Registered Agent Consent to Appointment

Kentucky registered agents must consent to their appointment by signing the Articles of Organization physically or electronically.

If the registered agent is unable to sign the physical formation document, they must submit a Statement of Consent of Registered Agent form. This form includes the following information:

  • Type of business entity
  • Name of business entity
  • State or county of incorporation, organization, or formation
  • Name of initial registered agent
  • Registered office address
  • Effective date
  • Registered agent signature

Step 3: File the Kentucky LLC Articles of Organization

The Kentucky Articles of Organization is used to officially register an LLC.

File Your Kentucky Articles of Organization

OPTION 1: File Online With the Kentucky Business One Stop Portal

File Online

- OR -

OPTION 2: File by Mail or in Person

Download Form


State Filing Cost: $40, payable to the Kentucky State Treasurer (Nonrefundable)

Mailing Address:
Michael G. Adams
Office of the Secretary of State
P.O. Box 718
Frankfort, KY 40602

Office Address:
Room 154, Capitol Building
700 Capital Ave.
Frankfort, KY 40601

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 Kentucky 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:

Screenshot of IRS online EIN application.

Ready to start saving on your taxes?

We recommend using a formation service to start your Kentucky S corp for you, so you can focus on the things that matter most - growing you business.

VISIT TAILOR BRANDS

Keep Your Kentucky S Corp Compliant

After electing an S corporation designation for your business, you will want to make sure that you familiarize yourself with state laws to keep your business operating in good standing. Every year you will need to file an annual report and pay taxes.

Kentucky S Corp Biennial Report

Your Kentucky business must file an annual report with the Kentucky Secretary of State. This report can be filed online and must be filed by June 30th every year. The annual report allows you to update the state with your business’s current address and contact information.

Even if your business is unprofitable and does not undergo any changes, you are still required to file an annual report. Failing to file on time can result in your business being dissolved.

Visit our step-by-step Kentucky Annual Report guide for more information.

Kentucky 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 Kentucky S corp owners will need to pay various 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.

Kentucky Income Taxes

Kentucky has a flat income tax rate of 5%. This means that you will pay the state 5% on your income regardless of your individual income bracket. Many local jurisdictions also have a local income tax in addition to this. Compared to other states, Kentucky’s flat rate of 5% is fairly low. Some states have an income tax rate greater than 10%, and other states have an income tax rate of 0%. Most states have a gradual income tax rate between these two figures. 

Kentucky Corporation Income and Limited Liability Entity Tax

Since your LLC is taxed as an S corporation and is technically a limited liability entity, you will need to pay Kentucky’s Limited Liability Entity Tax. If your business’s total gross receipts or total gross profits is less than $3 million, then your company only owes the minimum $175 tax. Visit the Kentucky Department of Revenue website to learn more. 

Kentucky State Tax Registration

Before you begin doing business in the state, you will want to register your business for state and local taxes. 

Go to the Kentucky Department of Revenue’s website for registration information.

Kentucky Sales and Use Tax

Kentucky has a 6% statewide sales tax rate. There are no local sales taxes in addition to this, so the sales tax rate will be 6% regardless of your Kentucky local jurisdiction. 

Additional State Taxes

Kentucky’s Department of Revenue has many different taxes your business may need to register for depending on your number of employees, location, and industry.

Here are some examples of taxes Kentucky business may need to pay:

  • Tobacco tax
  • Motor fuels tax
  • Bank franchise tax
  • Insurance premiums tax
  • Property tax
  • Telecommunications tax

Visit Kentucky’s One Stop Business Portal for additional information.

Kentucky Local Taxes

Many local jurisdictions have their own rules and laws that may impact your business. Whether you live in Lexington, Louisville, or a smaller city, we recommend you familiarize yourself with any local laws that could impact your business.

Start an S Corp FAQ

What is an S corp?

An S corporation (S corp) is a tax designation for which an LLC or a corporation can apply.

Are taxes for LLCs and S corps the same?

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.

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.

Both LLCs and S corps benefit from a provision in the Tax Cuts and Jobs Act of 2017 that allows qualifying owners of pass-through entities to deduct 20% of qualified business income (QBI) from their tax returns. However, for S corps, the deduction doesn’t apply to profits paid out as wages.

What is a reasonable salary for an S corp?

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.

What is a distribution?

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.

Can I still use my DBA name if I elect to be an S corp?

LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.

Related Articles

Have a Question? Leave a Comment!