LLC vs S-Corp in Mississippi

The Mississippi Secretary of State handles entity formation. The IRS handles federal tax classification via Form 8832 and Form 2553. The Mississippi Department of Revenue administers the corporate income and franchise tax. A Mississippi LLC can elect to be taxed as an S corporation for federal purposes. Mississippi LLC basics. - Certificate of Formation filed with the Mississippi Secretary of State. The domestic LLC filing fee is a published rate (most recently $50; confirm current rate with the Secretary of State). - Annual report filed with the Secretary of State on or before April 15 each year. Domestic LLCs pay no annual report fee. Foreign LLCs pay $250. Profit corporations (domestic or foreign) pay $23.25. - Single-member LLCs default to disregarded entity for federal tax. Multi-member LLCs default to partnership tax. Either can elect S corp treatment with Form 2553. - Mississippi imposes a corporate franchise tax on corporations and on LLCs taxed as corporations. Franchise tax is calculated on the net book value of capital used, invested, or employed in Mississippi. Minimum franchise tax is $25. The franchise tax is being phased out and will be fully eliminated for tax years after 2027. Mississippi income tax. - Mississippi has a graduated individual income tax that is being reduced annually by legislative schedule; confirm the current top rate with the Department of Revenue. Pass-through income from an LLC flows to the owner's Mississippi individual return. - Corporate income tax is imposed on corporations (including S corporations) at Mississippi rates. The tax is also being reduced on a legislative schedule. Mississippi S corp basics. - Federal S corp election flows through to Mississippi for income tax purposes. The S corp files Form 83-105 and the shareholders report pass-through income on individual returns. - The S corp still owes the corporate franchise tax (minimum $25) through the phase-out window. - Payroll. An S corp owner-employee must take a reasonable W-2 salary. Mississippi state withholding and state unemployment tax through the Mississippi Department of Employment Security apply. Why a Mississippi trades shop might still elect S corp. The main reason 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. With Mississippi's franchise tax phasing out, the S corp election is primarily a federal decision. Rule of thumb. Start as a Mississippi LLC. When annual profit after a reasonable owner wage is high enough that payroll tax savings clear the payroll, retirement plan, and accounting costs, elect S corp. A CPA with Mississippi construction clients can run the breakeven for your numbers and confirm current income and franchise tax rates.