LLC vs S-Corp in Montana

Montana has a graduated personal income tax with the top rate at 5.9 percent (effective tax year 2024 and after) and a corporate income tax rate of 6.75 percent on C corporations. Montana has no general statewide sales tax. Verify current rates on the Montana Department of Revenue site (https://mtrevenue.gov/) before relying on them. The Montana Secretary of State handles entity filing. The IRS handles the tax classification via Form 8832 and Form 2553. A Montana LLC can elect to be taxed as an S corporation. Montana LLC basics. - Articles of Organization filed online with the Montana Secretary of State Business Services (https://sosmt.gov/business/). The standard filing fee is low (verify current fee on the SOS site). - Annual report. Every Montana LLC must file an annual report with the SOS each year by April 15. Missing the deadline triggers late fees and eventually administrative dissolution. - 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 Montana franchise tax. No general state sales tax on most services (tourism-specific lodging and rental car taxes apply in limited cases). Montana S corp basics. - Montana recognizes the federal S election. An S corporation files Montana Form CIT (combined income/license tax return as amended for pass-through entities) with the Montana Department of Revenue. Income generally passes through to shareholders and is reported on their individual Montana returns at graduated rates up to 5.9 percent. - Montana's 6.75 percent corporate income tax applies primarily to C corporations. An S corp is generally not subject to that corporate-level tax on pass-through income, except for items specifically subject to corporate-level tax. - Payroll. An S corp must pay its owner-employee a reasonable W-2 salary. Montana imposes state unemployment insurance (UI) tax through the Unemployment Insurance Division at DLI once the business crosses the wage threshold. Why a Montana 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. Montana's graduated 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 a Montana 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 Montana construction clients can run the breakeven for your numbers and confirm the Montana filings, annual report schedule, Construction Contractor Registration, and any Board of Electrical or Board of Plumbers license-holder requirements for the entity you choose.