How to Start an S Corp in Mississippi
Mississippi is known as a great place to start a business given its diverse business landscape — from the state’s coastal towns on the Gulf of Mexico to its small agricultural towns. With an affordable cost of doing business, a growing economy, and plenty of tax incentives, the “Magnolia State” has a lot to offer entrepreneurs looking to start or expand a business.
One of the biggest decisions you’ll have to make in the early stages of starting your new venture involves choosing how to structure your business. By forming an S corporation (S corp) in Mississippi, you can benefit from lower taxes that’ll put more money in your pocket.
This guide will walk you through how to set up your Mississippi S corp and everything you’ll need to do to keep it in good standing with the state.
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 Mississippi
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 Mississippi 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 Mississippi 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 Mississippi
Starting a Mississippi 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 Mississippi.
Be sure to choose a name that complies with Mississippi naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a Mississippi LLC:
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Your name must include the phrase “limited liability company” or one of its abbreviations (LLC or L.L.C.).
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Your name may contain the name of a member or manager of the LLC.
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Your name cannot contain the following words: bank, banker, bankers, banking, trust company, insurance, trust, corporation, incorporated, partnership, limited partnership, or any abbreviations or words of similar meaning.
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Your name cannot include words that could confuse your LLC with a b (FBI, Treasury, State Department, etc.).
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Your name must be distinguishable from any existing business in the state. This includes Mississippi reserved names.
You can also read the Mississippi state statute about LLC naming guidelines for more information.
2. Is the name available in Mississippi? You can use the business search on the Mississippi 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 Mississippi Registered Agent
You must elect a registered agent for your Mississippi 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 Mississippi LLC Certificate of Formation
The Mississippi LLC Certificate of Formation is used to officially register an LLC.
File Your Mississippi Certificate of Formation
File Online With the Mississippi Secretary of State
File OnlineState Filing Cost: $50, payable to the Secretary of State (Nonrefundable)
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 Mississippi 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 Mississippi S corp for you, so you can focus on the things that matter most - growing you business.
Keep Your Mississippi S Corp Compliant
Legally forming your business may feel like a daunting process, but, once you elect S corp status and are ready to start operating, you must familiarize yourself with state and local laws in order to keep your business in good standing. To remain compliant, most Mississippi S corps must file an annual report and pay state taxes every year.
Mississippi S Corp Annual Report
All LLCs — even those taxed as S corps — must file an annual report with the Mississippi Secretary of State. The purpose of this report is to keep the state up to date on your business’s contact information. The state then uses this information to track Mississippi taxes.
While there’s no filing fee, your business will need to file an annual report by April 15 each year. If you don’t file this report, you risk having the state dissolve your business. Even if your business fails to make a profit or remains the same from one year to the next, you must still file an annual report.
Visit our Mississippi Annual Report guide for a step-by-step overview of the filing process.
Mississippi 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 Mississippi 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.
Mississippi Income Taxes
Mississippi’s income tax rates range from 4% to 5%, depending on your income bracket.
Some states have income tax rates higher than 9%, while others have no income tax. Mississippi sits in the middle with a fairly standard income tax rate.
Mississippi Sales and Use Tax
If your business has retail sales in Mississippi or is based in the state, you’ll likely need to collect Mississippi sales and use tax. This state’s sales tax rate is 7%, and some local jurisdictions levy an additional rate on top of this. Mississippi caps local sales tax rates at 1%, though, so you’ll never have sales tax rates above 8% within the state.
Before you begin operations, you must register online with the Mississippi Department of Revenue to start collecting sales tax. You also can use the Mississippi Department of Revenue’s resources to verify if your local jurisdiction collects an additional sales tax.
Additional State Taxes
Mississippi has numerous state-specific taxes your business may need to pay, depending on its industry, location, and number of employees. Some examples of these additional taxes include:
- Interstate Commercial Vehicles Tax
- Petroleum Tax
- Gaming Tax
- Salt Severance Tax
- Waste Disposal Fees
To learn more, visit the Mississippi Department of Revenue website.
Mississippi Local Taxes
From Jackson to Gulfport, every Mississippi city and town may have its own local taxes and regulations that affect businesses. Make sure to research how your local jurisdiction may impact your business’s operations and tax obligations.
Start a Mississippi 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.
Even if you already set up your business as an LLC, you can choose to elect S corp status for it at a later date. The process is simple and requires you to file Form 2553 with the IRS. Just make sure your business meets the requirements for the S corp tax designation.
Mississippi's primary industry is agriculture, but businesses in many industries also call this state home given its location near some major markets and affordable cost of doing business. As long as your business meets the S corp requirements set by the IRS, you can elect S corp status in just about any industry.