Starting a small business in Ohio can provide you with the support you’ll need to successfully grow your new venture to any size. Setting up your business as an S corporation (S corp) in Ohio could save you a lot of money during tax season. Whether you want to operate in the restaurant industry, the manufacturing sector, or the hundreds of other business markets thriving in the state, electing S corp status can set your business up for success.
This guide will cover how to set up your business as an S corp, what’s required, and share some tips to maintain your S corp in good standing for as long as you’re in business.
Not in Ohio? 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 Ohio
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 an Ohio 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.
How to Form an Ohio 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 Ohio
Starting an Ohio 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 Ohio.
Be sure to choose a name that complies with Ohio naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for an Ohio LLC:
- Your name must include the phrase “limited liability company” or one of the following: LLC, L.L.C., limited, ltd., or ltd.
- Your name cannot contain profanity or words or phrases that are generally considered a slur against an ethnic group, religion, gender, or heredity.
- Your name cannot incorrectly or improperly imply that the business is affiliated with a government agency.
- Your name cannot include any of the following words without prior approval from the Superintendent of Financial Institutions: bank, banker, banking, trust, or words of similar meaning in any other language.
- Your name cannot include the following unless the LLC is registered as a cooperative: cooperative, coop, co-operative, or co-op.
- Your name must be distinguishable from any existing business in the state. This includes Ohio reserved names.
You can also read the Ohio state statute about LLC naming guidelines for more information.
2. Is the name available in Ohio? Make sure the name you want is available by doing a business name search on the Ohio Secretary of State website.
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 Ohio Registered Agent
You must elect a statutory agent, also known as a registered agent, for your Ohio 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.
Ohio Registered Agent Consent to Appointment
Registered agents in Ohio must consent to their appointment by signing the LLC Articles of Organization in physical or electronic form.
Step 3: File the Ohio LLC Articles of Organization
The Ohio Articles of Organization is used to officially register an LLC.
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 Ohio 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 Ohio S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your Ohio S Corp Compliant
After you get your Ohio S corp up and running, you’ll need to ensure it complies with all local and state laws and guidelines. Thankfully, in Ohio, maintaining your business in good standing is as easy as paying its taxes on time.
Ohio S Corp Annual Report
Even if you elect S corp status for your business, it still needs to follow the same guidelines set for LLCs. Unlike most states, Ohio doesn’t require businesses to file an annual report with the state. Because S corps follow LLC guidelines, they don’t have to file an annual report in Ohio.
Ohio 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 Ohio S corp owners can expect to pay the following 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.
Ohio Income Taxes
The state of Ohio has a graduated individual income tax rate, which ranges from 2.765% to 3.990%. In addition, some jurisdictions within Ohio collect local income taxes on top of the state rate. Visit your local government’s website to review the income tax rates in your area to ensure your business remains compliant.
Ohio Sales and Use Tax
Ohio’s sales and use tax rate is 5.75% — and counties and regional transit authorities within the state can levy additional sales and use taxes. Check with your local municipality or visit the Ohio Department of Taxation website for more information.
Additional State Taxes
The Ohio Department of Taxation provides details on many state-specific taxes that may apply to your business. Some examples of these additional taxes include:
- Alcoholic Beverage Tax
- Motor Fuel Tax
- Natural Gas Distribution Tax
- Resort Tax
- Tobacco Tax
Visit the Ohio Department of Taxation website for more information.
Ohio Local Taxes
Whether your business operates in Columbus, Cleveland, or any of Ohio’s other smaller cities, check with your local government to ensure you understand the taxes your business must pay.
Start an Alaska S Corp FAQ
What is an S corp?
An S corporation (S corp) is a tax designation that an LLC or a corporation can elect.
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.
What kind of business in Ohio can elect S corp status?
Ohio is known for some incredible inventions and innovations — from the airplane to the lightbulb. It continues to support business growth in some of the most prominent industries in the nation, including energy, technology, agriculture, processing, automotive, aerospace, aviation, and more. No matter what industry you choose to build your business in, electing S corp status can prove beneficial.
Is Ohio a good state for an S corp?
You should always start your new venture in the state where you plan to operate the business. With attractive business incentives, no state income tax, and an affordable cost of living, Ohio is a great place to start a business. By electing S corp status for your Ohio business, you can save money at tax time and put more back into your pocket as a small business owner.