LLC vs S-Corp in Idaho

Idaho has a flat 5.695 percent personal income tax rate and a 5.695 percent corporate income tax rate (effective tax year 2024 and after; verify current rates on the Idaho State Tax Commission site at https://tax.idaho.gov/ before relying on them). The Idaho Secretary of State handles entity filing. The IRS handles tax classification via Form 8832 and Form 2553. An Idaho LLC can elect to be taxed as an S corporation. Idaho LLC basics. - Certificate of Organization filed online with the Idaho Secretary of State's SOSBiz portal (https://sosbiz.idaho.gov/). The standard filing fee is $100 (online; verify current fee on the SOS fee schedule). - Annual report. Every Idaho LLC must file an annual report with the SOS each year by the last day of the LLC's anniversary month. The annual report is free but the filing is mandatory. - Single-member LLCs default to disregarded entity for federal tax. Multi-member LLCs default to partnership tax. Either can elect S corp treatment with IRS Form 2553. - No Idaho franchise tax on LLCs. Idaho S corp basics. - Idaho recognizes the federal S election. An S corporation files Idaho Form 41S, the Idaho S Corporation Income Tax Return. Income generally passes through to shareholders and is reported on their individual Idaho returns at the 5.695 percent flat rate. - Idaho's 5.695 percent corporate income tax applies primarily to C corporations. An S corp is generally not subject to that corporate-level rate on pass-through income, except for items specifically subject to corporate-level tax. Idaho does impose a minimum $20 corporate tax under Idaho Code 63-3025A. - Payroll. An S corp must pay its owner-employee a reasonable W-2 salary. Idaho imposes state unemployment insurance (UI) tax through the Idaho Department of Labor once the business crosses the wage threshold. Why an Idaho trades shop might elect S corp. The main driver is federal self-employment tax savings. A disregarded-entity LLC owner pays self-employment tax on the full net profit. An S corp owner-employee pays payroll tax on wages only; the distribution portion avoids self-employment tax. Idaho's 5.695 percent flat state rate applies to the owner's pass-through income either way, so the state-tax side is roughly neutral between LLC and S corp. The federal payroll-tax math is where the decision is made. Rule of thumb. Start as an Idaho LLC. When annual profit after a reasonable owner wage is high enough that payroll tax savings clear the payroll, retirement plan, and accounting costs (plus the $20 Idaho minimum tax), elect S corp. A CPA with Idaho construction clients can run the breakeven for your numbers and confirm the Idaho filings, annual report schedule, Idaho Contractor Registration, and DBS license-holder requirements for the entity you choose.