How to Start an S Corp in Montana

Starting an S corporation (S corp) in Montana 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 Montana 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 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 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 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.

Businesses that elect S corp status will need to hire payroll and accounting services.

Payroll Services Review | Accounting Services Review

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 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 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 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 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.

Find a Domain Now

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 Online

State 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:

Screenshot of IRS online EIN application.

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.

VISIT TAILOR BRANDS

Keep Your Montana S Corp Compliant

Legally forming your business is challenging, but once you’ve elected to be taxed as an S corp and are ready to start business operations, it’s important that you familiarize yourself with state and local laws in order to keep your business operating in good standing. To achieve this, 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 an S corporation, must file an annual report with the Montana Secretary of State. Since your S corporation’s legal entity is technically still an LLC, you will file the same annual report that 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 over the years, you still will need to file an annual report before the April 15th 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 corporations must file a Montana Pass-Through Entity Tax Return (Form PTE) with their annual state tax returns. This form will ask for similar information that you will provide in your federal Form 1120S but is used by the state. 

Montana Income Taxes

Montana has a statewide income tax range ranging from 1% to 6.75%. Your state income tax rate is determined by your individual income tax bracket. Compared to other states, Montana’s income tax rate is fairly average. While some states have an income tax rate of 0%, others have an income tax rate higher than 9%.

Montana Sales and Use Tax

Montana does not levy a sales tax. Montana’s lack of a statewide sales tax is often used to justify its 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 additional taxes with the Montana Department of Revenue. These taxes will depend on your business needs as well as your business industry, location, and number of employees. 

Examples of business taxes and fees your Montana business may be responsible for include:

  • Contractor’s gross receipts tax
  • Lodging facility tax
  • Rental vehicle tax
  • Wholesale energy transaction tax
  • Local resort tax
  • Moist snuff tax
  • 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 laws in Bozeman may differ significantly from the local laws in Missoula or Billings. Regardless of where you live in the state, we recommend that you read up on how any local jurisdiction laws and ordinances may impact your business’s operations.

Start a Montana 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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