How to Start an S Corp in Michigan

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 Michigan 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.

Steps for Forming an LLC and Electing S Corp Status in Michigan

Starting a Michigan 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 do it for you.

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 Michigan.

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

1. Follow the naming guidelines for a Michigan LLC:

• Your name must include the phrase “limited liability company,” or one of its abbreviations (LLC, L.L.C., LC, or L.C.).

• Your name cannot imply that the LLC is organized for any purpose other than the one outlined in its articles of organization.

• Your name cannot contain the words "corporation" or "incorporated" or the abbreviations "corp." or "inc."

• Michigan has a long list of restricted words that may require approval for your LLC to use in its name. You can see the full list on the State of Michigan website.

• The name of a low-profit LLC must contain the words "low-profit limited liability company" or the abbreviation "L.3.C." or "l.3.c.,", with or without periods.

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

2. Is the name available in Michigan? You can use the business entity search on the Michigan Department of Licensing and Regulatory Affairs 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.

Michigan S Corp Annual Report

Every year, your Michigan S corp will need to file an annual report with the Michigan Department of Licensing and Regulatory Affairs. The annual report you’ll file for your LLC with S corp status is the same annual report all LLCs must file with the state. 

Annual reports require you to provide your business’s contact information and registered agent details in order to keep the state’s records up to date. Even if your business fails to make a profit or its contact information remains the same from one year to the next, you still must file an annual report before February 15 each year. The state of Michigan can legally dissolve your business if you fail to file an annual report.

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

Michigan 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 Michigan 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.

Michigan Income Taxes

Michigan has a flat income tax rate of 4.25%, meaning the rate stays the same regardless of your income bracket. Some local jurisdictions also levy their own income tax, which you must pay on top of the state’s 4.25% rate.

While some states have income tax rates of 9% or more, others have no state income tax. Michigan’s flat rate of 4.25% may be higher than 0%, but it’s still fairly low when compared to the average state income tax rate.

Register Your Business With the Michigan Treasury

Before you begin operating your S corp, you’ll need to register your business online with the Michigan Department of Treasury. While you don’t need to pay corporate taxes as an S corp, your business must still pay state and local taxes. This registration is essential for obtaining a sales tax license and paying Michigan business taxes.

Michigan Sales and Use Tax

Michigan has a sales tax rate of 6%, and local jurisdictions don’t levy additional sales taxes. You’ll likely owe sales tax to the state if your business sells products to customers.

Additional State Taxes

The Michigan Department of Treasury provides details on other state-specific taxes your business may have to pay, depending on its industry, number of employees, and location. Some examples of these additional taxes include:

• Marihuana Retailers Excise (MRE) Tax
• International Fuel Tax
• Motor Fuel Tax
• Severance Tax
• Tobacco Tax

Visit the Michigan Department of Treasury website for more information.

Michigan Local Taxes

Local laws in Detroit differ from those in Grand Rapids. No matter where your business operates in the state of Michigan, we recommend you research how local laws, taxes, and regulations may impact your business’s daily operations.