How to Start an S Corp in Maine
Maine is a beautiful coastal state with a great location near many of the nation’s major markets. It has a lot to offer businesses of all sizes — and small businesses are at the heart of Maine’s economy.
If you plan to start a business in Maine, it’s important to consider how you want to structure your business. By electing to form your business as an S corporation (S corp), you can save money come tax season. That means you can put more of your hard-earned cash back into your pocket and invest those tax savings in growing your business.
This guide will walk you through how to set up your business as a Maine S corp and how to keep it compliant with all state laws and guidelines.
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 Maine
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 a Maine 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 a Maine 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 Maine
Starting a Maine 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 Formation
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 Maine.
Be sure to choose a name that complies with Maine naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a Maine LLC:
- Your name must include the phrase “limited liability company” or “limited company” or one of their abbreviations (LLC, L.L.C., L.C., LC).
- Your name cannot include obscene language.
- Your name cannot promote abusive or unlawful activity.
- Your name cannot falsely suggest an association with public institutions.
- You must get approval from the Maine Bureau of Financial Institutions to include any of the following words in your name: savings, savings bank, bank, banker, banking, trust, trust company, trust and banking company, and credit union (or any plurals or variations).
- Your name must be distinguishable from any existing business in the state. This includes Maine reserved names.
- Low-profit LLC names must include "Low-profit Limited Liability Company, "L3C," or "13c."
You can also read the Maine state statutes about LLC naming guidelines for more information.
2. Is the name available in Maine? You can use the corporate name search on the Maine Department of the 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 Maine Registered Agent
You must elect a registered agent for Maine 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 Formation.
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 Maine LLC Certificate of Formation
The Maine Certificate of Formation is used to officially register an LLC.
File Your Maine Certificate of Formation
File Form MLLC-6 by Mail With the Maine Secretary of State
Download FormState Filing Cost: $175, payable to the Maine Secretary of State (Nonrefundable)
Mailing Address:
Secretary of State
Division of Corporations, UCC and Commissions
101 State House Station
Augusta, ME 04333
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 Maine 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 Maine S corp for you, so you can focus on the things that matter most - growing you business.
Keep Your Maine S Corp Compliant
Once you get your Maine S corp up and running, you need to ensure it follows state and local laws to remain compliant and in good standing with the state.
Maine S Corp Annual Report
Every Maine LLC must file an annual report with the Maine Department of the Secretary of State. While you may elect to have your business taxed as an S corp, it’s still technically an LLC, so it must comply with this requirement.
Annual reports allow you to keep your business’s records and contact information up to date with the state. Even if your business doesn’t change from one year to the next, you must still file an annual report by June 1 each year. If you don’t file an annual report, the state may take actions to dissolve your Maine business.
Check out our Maine Annual Report page for a step-by-step guide.
Maine 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 Maine 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.
Maine Income Taxes
Maine has a graduated income tax rate, ranging from 5.80% to 7.15%. Similar to federal income taxes, your Maine income tax rate will depend on your income bracket.
Some states have no income tax while others impose income tax rates that exceed 10%. That places Maine’s income tax rate on the higher end when compared to other states.
Maine Sales and Use Tax
Maine has a state sales tax rate of 5.50%, but unlike other states, it doesn’t have any local sales taxes. That means all jurisdictions in Maine have the same sales tax rate of 5.50%.
You’ll need to register your business with Maine Revenue Services in order to pay sales and use taxes.
Additional State Taxes
The Maine Revenue Services Department also provides information on a number of state-specific taxes your Maine business may need to pay based on its location, number of employees, and industry. Examples of these additional taxes include:
- Cigarette Tax
- Fuel Tax
- Insurance Taxes
- Property Tax
- Telecommunications Tax
Visit the Maine Revenue Services website for more information.
Maine Local Taxes
Many local jurisdictions in Maine have their own rules that may affect how your business operates. Whether you’re based in Portland, Lewiston, or a smaller city, we recommend you familiarize yourself with the regulations and laws of your local jurisdiction.
Start a Maine 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.
Businesses in many industries — from manufacturing to agriculture and fishing — operate in Maine. Whether you plan to start a small restaurant, open a boutique retail shop, or offer specialty services, you can benefit from electing S corp status for your business as long as you meet the IRS’s requirements.
Even if you already established an LLC in Maine, it’s not too late to change its tax status. Because the process is almost identical, it’s simple to change to the S corp tax designation by filing Form 2553 with the IRS.