How to Start an S Corp in Rhode Island
Rhode Island may be small, but the “Ocean State” can offer entrepreneurs a lot of benefits. With its prime location in the Northeast near many larger markets within the surrounding states, access to an educated workforce, and plenty of tax incentives, Rhode Island is a great place to start a business.
Yet, deciding on a business structure can prove challenging for many entrepreneurs. By forming an S corporation (S corp), you can save money on your business taxes. This guide will provide details on how to form your Rhode Island S corp as well as the information you need to maintain it in good standing.
Not in Rhode Island? 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 Rhode Island
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 Rhode Island 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.
How to Form a Rhode Island 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 Rhode Island
Starting a Rhode Island 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 Rhode Island.
Be sure to choose a name that complies with Rhode Island naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a Rhode Island LLC:
- Your name must end in either the words "limited liability company" or the upper or lower case letters "l.l.c.," with or without punctuation.
- If your company is organized as a low-profit limited liability company, its name must end with either the words "low-profit, limited liability company" or the abbreviation "L3C" or "l3c"
- 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, such as a doctor or lawyer, to be part of your LLC.
- Your name must be distinguishable from any existing business in the state. This includes Rhode Island reserved names.
You can also read the Rhode Island state statute about LLC naming guidelines for more information.
2. Is the name available in Rhode Island? You can search the corporate database on the Rhode Island 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 Rhode Island Registered Agent
You must elect a resident agent, also known as a registered agent, for your Rhode Island 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 Rhode Island LLC Articles of Organization
The Rhode Island Articles of Organization is used to officially register an LLC.
OPTION 1: File Online With the Rhode Island Secretary of State
- OR -
OPTION 2: File Form 400 by Mail or in Person
State Filing Cost: $150, payable to the Secretary of State (Nonrefundable)
Division of Business Services
148 W. River St.
Providence, RI 02904
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 Rhode Island 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 Rhode Island S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your Rhode Island S Corp Compliant
Getting your business up and running is just the beginning of your entrepreneurial journey. After you launch your new venture, you’ll need to keep it in good standing with Rhode Island by paying all required taxes, following state and local laws and guidelines, and filing an annual report.
Rhode Island S Corp Annual Report
While you elected S corp status for your business, it must still follow the guidelines in place for LLCs. As a Rhode Island S corp, you’ll need to file an annual report with the Rhode Island Department of State.
This annual report captures basic information about your business, such as your business address, contact information, and more. It’s due between February 1 and May 1 each year after you filed your business registration with the state of Rhode Island. Failure to file can result in a late fee and risk your business losing its good standing status.
Visit our Rhode Island Annual Report guide for a step-by-step overview of the filing process.
Rhode Island 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 Rhode Island 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.
Rhode Island Income Taxes
Rhode Island has a graduated income tax rate that varies by income — from 3.75% to 5.99%. Starting a business in a state with a graduated income tax rate ensures you’ll have a lower tax rate if your business earns a lower amount in a given tax year. It also means you’ll pay more in taxes if you earn a higher amount within a tax year.
Rhode Island Sales and Use Tax
This state’s 7% sales and use tax applies to the retail sale, rental, and lease of many goods and services. Depending on your business’s location, it also may need to pay additional sales and use taxes imposed by cities and towns within Rhode Island. Visit the Division of Taxation section of the state’s website for more information.
Additional State Taxes
The Division of Taxation within Rhode Island's Department of Revenue also provides information on additional state-specific taxes that may apply to your small business. Some examples of these taxes include:
- Alcohol Import Tax
- Beverage Container and Litter Tax
- Hotel Tax
- Motor Fuel Tax
- Meals and Beverage Tax
For more information, visit the Division of Taxation section on the state’s website.
Rhode Island Local Taxes
Each local municipality may levy its own taxes, which it may require your business to pay. To ensure you remain compliant with local laws and taxes, visit your local government's website for more information.
Start a Rhode Island 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 businesses in Rhode Island can be set up as an S corp?
Rhode Island is home to businesses in many major industries, including biomedicine, maritime production, and manufacturing. You can start a business in any industry and elect S corp status for it — as long as your business meets the eligibility requirements set by the IRS. You can save a lot of money in taxes by electing the S corp tax designation for your business.
Is Rhode Island a good state for an S corporation?
Rhode Island has a graduated income tax, business incentives and credits, and a great business landscape for companies of any size. With all that Rhode Island has to offer, it's an ideal place for you to establish your business while saving money.