How to Start an S Corp in Massachusetts
Massachusetts is one of the most popular destinations on the East Coast given its rich history and beautiful views of the Atlantic Ocean. Business owners throughout Massachusetts benefit from the state’s thriving economy, high business success rate, access to a highly educated workforce, and affordable tax rate.
If you plan to start your business in Massachusetts, you must first choose its business structure. By forming your business as an S corporation (S corp), you can enjoy a lower tax rate among other key benefits associated with operating an S corp.
This guide will walk you through how to form a Massachusetts S corp and provide tips to help you keep your business 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 Tailor Brands to get your S corp up and running in no time.
Factors to Consider Before Starting an S Corp in Massachusetts
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 Massachusetts 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.
How to Form a Massachusetts 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 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 Massachusetts
Starting a Massachusetts 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 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 Massachusetts.
Be sure to choose a name that complies with Massachusetts naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a Massachusetts LLC:
Your name must include the phrase “limited liability company” or “limited company” or one of their abbreviations (LLC, L.L.C., LC, or L.C.).
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 cannot be the same as or deceptively similar to any existing business in Massachusetts. This includes reserved names.
You can also read the Massachusetts state statute about LLC naming guidelines for more information.
2. Is the name available in Massachusetts? You can use the business entity search and the name reservation search on the Massachusetts Secretary of the Commonwealth 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 Massachusetts Registered Agent
You must elect a resident agent, also known as a registered agent, for your Massachusetts 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.
Massachusetts Registered Agent Consent to Appointment
Registered agents in Massachusetts must consent to their appointment. They can do this by signing the LLC’s Certificate of Organization or a separate statement that is then attached to the Certificate of Organization.
If filing Certificate of Organization online rather than a hard copy, you will have to sign electronically, stating that the registered agent has consented to the appointment.
Step 3: File the Massachusetts LLC Certificate of Organization
The Massachusetts Certificate of Organization is used to officially register an LLC.
OPTION 1: File Online With the Massachusetts Secretary of the Commonwealth
- OR -
OPTION 2: File by Mail, by Fax, or in Person
State Filing Cost: $500, payable to the Secretary of the Commonwealth (Nonrefundable)
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Room 1717
Boston, MA 02108
Fax: (617) 624-3891
Note: Fax filings must include a Fax Voucher Coversheet
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 Massachusetts 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 Massachusetts S corp for you, so you can focus on the things that matter most - growing you business.
Keep Your Massachusetts S Corp Compliant
After forming your Massachusetts business and electing S corp status, you’ll want to ensure you understand state and local laws in order to keep it in good standing with the state.
Massachusetts S Corp Annual Report
Every year, your Massachuesetts S corp must file an annual report and cover sheet with the Massachusetts Secretary of the Commonwealth. Because your business is an LLC taxed as an S corp, you must file the LLC annual report.
This annual report provides the state with important information, such as your business’s name, address, registered agent details, and members’ contact details. Even if your business’s information remains the same from year to year, you must still file an annual report each year. The filing deadline is your business’s anniversary date, which is the day you officially registered your LLC — not the day you elected S corp status.
For more information, see our step-by-step Massachusetts Annual Report guide.
Massachusetts 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 Massachusetts 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.
Massachusetts Income Taxes
Massachusetts has a flat 5% income tax rate. This means all individuals in the state pay a 5% tax on their income regardless of their income bracket.
Some states have no income tax while others impose income tax rates of more than 10%. That makes Massachusetts’s 5% income tax rate fairly standard when compared to other states.
Register for Massachusetts Taxes
Because LLCs that elect S corp status are “pass-through” entities, you won’t have to pay corporate business taxes. However, you’ll still need to pay local and state business taxes like sales tax and any additional miscellaneous taxes.
Before your business starts operating, you must register it with the Massachusetts Department of Revenue so you can fulfill your business tax obligations.
Massachusetts Sales and Use Tax
Massachusetts has a statewide sales tax of 6.25%. While some states allow local jurisdictions to levy an additional sales tax on top of the statewide sales tax, Massachusetts local jurisdictions don’t do so. That means you’ll pay a 6.25% sales tax rate no matter where your business operates in Massachusetts.
Additional State Taxes
The Massachusetts Department of Revenue provides details on numerous other taxes your business may need to pay, depending on its industry, location, and number of employees. Some examples of these additional taxes include:
- Alcoholic Beverage Excise Tax
- Marijuana Retail Taxes
- Meals Tax
- Out-of-State Contractors Tax
- Room Occupancy Excise Tax
- Telecommunications Tax
Visit the Massachusetts Department of Revenue website for more information.
Massachusetts Local Taxes
The local laws and regulations in Boston may differ drastically from those in Worcester. Regardless of your business’s location within the state of Massachusetts, you should familiarize yourself with your local jurisdiction’s laws and regulations. This’ll help you keep your business in good standing and ensure you understand any laws that’ll impact how you do business.
Start a Massachusetts S Corp FAQ
What is an S corp?
An S corporation (S corp) is a tax designation that an LLC or a corporation can elect.
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.
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.
What types of businesses can elect S corp status in Massachusetts?
Massachusetts has a healthy economy built across several sectors, including education, technology, and healthcare. As long as your business meets the IRS’s requirements for an S corp, you can form an S corp in just about any industry.
Can I change from an LLC to an S corp in Massachusetts?
If you already formed your business as an LLC, it's not too late to update its tax status. The process for forming an S corp is almost identical to forming an LLC. You’ll just need to file Form 2553 with the IRS.