How to Start an S Corp in Montana
From the Rocky Mountains to the expansive Great Plains, Montana is one of the most beautiful states in the nation. Starting a business in Montana offers you a high quality of life and a healthy business tax climate in a thriving economy.
If you plan to start a business in Montana, you can elect to form an S corporation (S corp) and potentially save money on your taxes. The more you can save as a small business owner, the more you can reinvest in your business to drive its growth.
This guide will walk you through everything you need to know to form your Montana S corp and provide tips to help you 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 Montana
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 Montana 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 Montana 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 Montana
Starting a Montana 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 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 Montana.
Be sure to choose a name that complies with Montana naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a Montana 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.). The word "limited" may be abbreviated as "ltd.," and the word "company" may be abbreviated as "co.”
- Your name cannot include identifiers (e.g., Limited Partnership, Inc., Corp.) that imply the company is anything other than an LLC.
- 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. This includes Montana reserved names.
You can also read the Montana state statute about LLC naming guidelines for more information.
2. Is the name available in Montana? You can use the business search on the Montana 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 Montana Registered Agent
You must elect a registered agent for your Montana 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 Montana LLC Articles of Organization
The Montana Articles of Organization is used to officially register an LLC.
File Your Montana Articles of Organization
OPTION 1: File Online With the Montana Secretary of State
File OnlineState Filing Cost: $70, payable to the Secretary of State (Nonrefundable)
Instructions: Select "Articles of Organization for Domestic Limited Liability Company," log in or create an ePass account, and fill out the required fields.
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 Montana 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 Montana S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your Montana S Corp Compliant
Legally forming your business can prove challenging, but once you elect S corp status and start operating, it’s important to familiarize yourself with state and local laws in order to keep your business in good standing. To stay compliant, most Montana S corps will need to file an annual report and pay state taxes every year.
Montana S Corp Annual Report
All LLCs — even those taxed as S corps — must file an annual report with the Montana Secretary of State. Because your S corp’s legal entity is, technically, still an LLC, you need to file the same annual report that other LLCs file.
This form updates the state with your business’s contact information and allows the government to track state taxes. Even if your business’s contact information remains the same from year to year, you still need to file an annual report by the April 15 deadline each year.
Visit our step-by-step Montana Annual Report guide for more information.
Montana 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 Montana 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.
File the Montana Pass-Through Entity Tax Return (Form PTE)
All Montana S corps must file a Montana Pass-Through Entity Tax Return (Form PTE) with their annual state tax returns. This form asks for similar information to what you’ll provide in your federal Form 1120S, but it’s used by the state.
Montana Income Taxes
Montana has a graduated state income tax, ranging from 1% to 6.75%. Your state income tax rate will depend on your individual income tax bracket.
Montana Sales and Use Tax
Montana doesn’t levy a sales tax. This lack of a statewide sales tax supports Montana’s position as a business-friendly state and may provide business owners with a competitive edge when compared to similar businesses in neighboring states.
Additional State Taxes
You may have to register your business for other state-specific taxes with the Montana Department of Revenue, depending on its needs, industry, location, and number of employees. Examples of these additional taxes include:
- Contractor’s Gross Receipts Tax
- Lodging Facility Tax
- Rental Vehicle Tax
- Wholesale Energy Transaction Tax
- Local Resort Tax
- Moist Snuff Taxes
- Retail Telecommunications Excise Tax
To learn more, visit the Montana Department of Revenue website or sign in to Montana’s official TransAction Portal.
Montana Local Taxes and Laws
The local laws in Bozeman may differ significantly from those in Missoula or Billings. Regardless of where you live in the state, we recommend you research how your local jurisdiction’s laws and ordinances may impact your business’s operations.
Start a Montana 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, it's not too late to elect the S corp tax designation. The process is pretty straightforward and easy to complete. As long as your business meets the requirements of an S corp, you just need to file Form 2553 with the IRS.
The best place for you to form your S corp is the state where you’ll primarily operate. With a strong economy that supports small businesses and an attractive tax climate, Montana is a great place to start an S corp.