LLC vs S-Corp in Maryland

Maryland has a personal income tax with a graduated rate structure and a corporate income tax. The Maryland State Department of Assessments and Taxation (SDAT) handles entity formation. The IRS handles federal tax classification via Form 8832 and Form 2553. A Maryland LLC can elect to be taxed as an S corporation for federal purposes, and Maryland generally follows the federal S election. Maryland LLC basics. - Articles of Organization filed with the Maryland SDAT, under the Maryland Limited Liability Company Act (Md. Code Ann., Corporations and Associations Title 4A). - Current formation filing fee is $100. Source: Maryland State Department of Assessments and Taxation (https://dat.maryland.gov/businesses/Pages/Business-Forms.aspx) and Maryland Business Express (https://egov.maryland.gov/businessexpress/). - Maryland LLCs must file an annual Personal Property Return and Annual Report with SDAT by April 15 each year. Current annual report fee is $300 for most LLCs (verify current amount on the SDAT fee schedule). - 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. Maryland state tax treatment. - Pass-through entities (LLCs taxed as partnerships, S corporations) file the Maryland Form 510 (Pass-Through Entity Income Tax Return). Income flows through to members or shareholders, who pay Maryland personal income tax at graduated rates (plus a Maryland county income tax based on residency). Source: Maryland Comptroller, Business Taxes (https://marylandtaxes.gov/business/income/). - Maryland corporate income tax applies to C corporations at 8.25%. Federal S corp election is respected for Maryland purposes; an S corporation files Form 510 and is not subject to Maryland corporate income tax on pass-through earnings. - Maryland enacted a Pass-Through Entity (PTE) election that allows qualifying pass-throughs to pay Maryland income tax at the entity level (Form 511), preserving a federal SALT deduction above the SALT cap. Evaluate the PTE election annually with a CPA. Source: Maryland Comptroller, Pass-Through Entity (https://www.marylandtaxes.gov/business/income/pass-through/index.php). Maryland S corp basics. - Federal S corp election flows through to federal income tax only. Maryland follows the federal S election by default. - Payroll. An S corp must pay its owner-employee a reasonable W-2 salary. Maryland has unemployment insurance through the Department of Labor, plus city and county wage withholding where applicable, in addition to federal Social Security, Medicare, and FUTA. Why a Maryland trades shop might elect S corp. Primarily for 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 federal self-employment tax. Maryland's personal income tax (plus county income tax) applies either way. The Maryland PTE election may add SALT benefits for higher-income owners. Rule of thumb. Start as a Maryland LLC. When annual profit after a reasonable owner wage is high enough that federal payroll-tax savings clear payroll, retirement plan, and accounting costs, elect S corp. Evaluate the Maryland PTE election each year with a CPA.