How to Start an S Corp in Minnesota

Starting an S corporation (S corp) in Minnesota 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 Minnesota 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 Minnesota

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 Minnesota 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 Minnesota 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 Minnesota

Starting a Minnesota 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 Minnesota.

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

1. Follow the naming guidelines for a Minnesota LLC:

  • Your name must include the phrase “limited liability company” or the abbreviation “LLC.”

  • Your name cannot contain the words "corporation" or "incorporated" or abbreviations of either word.

  • Your name cannot imply that the LLC is organized for a non-permitted purpose.

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

  • Certain 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 in the state.

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

2. Is the name available in Minnesota? You can use the business entity search on the Minnesota 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 Minnesota Registered Agent

You must elect a registered agent for your Minnesota 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 Minnesota LLC Articles of Organization

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

File Your Minnesota Articles of Organization

OPTION 1: File Online With the Minnesota Secretary of State

File Online

- OR -

OPTION 2: File by Mail or in Person

Download Form

State Filing Cost: $155 online and in person, $135 by mail, payable to the Secretary of State (Nonrefundable)

Filing Address:
Minnesota Secretary of State — Business Services
Retirement Systems of Minnesota Building
60 Empire Dr., Suite 100
St Paul, MN 55103

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 Minnesota 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 Minnesota S corp for you, so you can focus on the things that matter most - growing you business.


Keep Your Minnesota S Corp Compliant

Once you have your Minnesota S corp up and running, you will want to be sure to keep your business in good standing by following state laws and guidelines. Minnesota requires businesses to file an annual renewal, and you will have to pay Minnesota state taxes each year. 

Minnesota S Corp Annual Renewal

Also known as an annual report, your annual renewal must be filed each year with the Minnesota Secretary of State. The purpose of the annual renewal is to update the state government with any changes to your business’s address or contact information. The state government uses this information to track state taxes. 

Even if your business does not make a profit, you must file an annual report before December 31st of each year. The state of Minnesota can dissolve your business if you fail to file on time. While your business may be taxed as an S corporation, your business entity is still technically an LLC, so you should file the same annual report that LLCs file.

Check out our Minnesota Annual Renewal guide for step-by-step filing instructions.

Minnesota 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 Minnesota 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.

Minnesota Income Taxes

Minnesota has a gradual state income tax ranging from 5.35% to 9.85%. Similarly to the federal income tax, Minnesota’s gradual income tax rate changes based on your individual income bracket. Compared to other states, Minnesota’s income tax rate is fairly high. Some states have income tax rates over 10%, but a handful of states also have income tax rates of 0%. 

Minnesota Tax ID Number & Sales Tax Registration

After you form your business, you will likely need to obtain a Tax ID Number from the Minnesota Department of Revenue. While you are filing out the proper paperwork to obtain your Tax ID Number, you will be prompted to also register for state sales tax. Your Minnesota Tax ID Number will then serve as your sales tax permit.

Minnesota Sales and Use Tax

The state of Minnesota has a 6.875% state sales tax rate, and many local jurisdictions also levy their own sales tax in addition to this. However, local sales tax rates are capped at 2%. Sales tax looks different based on your industry, and Minnesota’s Department of Revenue has sales tax industry guides to help business owners understand how sales tax impacts their particular industry.

Additional State Taxes

The Minnesota Department of Revenue lists various miscellaneous taxes and regulations that your business may be responsible for based on your industry, number of employees, and location.

Below are a few examples of miscellaneous Minnesota taxes:

  • Environmental tax
  • Fiduciary tax
  • Gambling tax
  • Mining and mineral tax
  • MinnesotaCare tax
  • Solar energy production tax
  • Wind energy production tax

Check out the Minnesota Department of Revenue website for additional information.

Minnesota Local Taxes

Local laws and taxes in Minneapolis differ from those in St. Paul. No matter where your business is located at within Minnesota, you will want to familiarize yourself with your local jurisdiction and determine how any local laws may impact your business taxes and daily operations.

Start a Minnesota 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.

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.

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