LLC vs S-Corp in New Jersey

New Jersey has a graduated personal income tax (Gross Income Tax) and a corporate business tax. The New Jersey Division of Revenue and Enterprise Services handles entity formation. The IRS handles federal tax classification via Form 8832 and Form 2553. A New Jersey LLC can elect to be taxed as an S corporation for federal purposes, and New Jersey generally follows the federal S election (with a separate state S election required). New Jersey LLC basics. - Certificate of Formation filed through the New Jersey Business Formation Portal, under the Revised Uniform Limited Liability Company Act (N.J.S.A. 42:2C-1 et seq.). - Current formation filing fee is $125. Source: NJ Division of Revenue (https://www.njportal.com/DOR/BusinessFormation). - New Jersey LLCs must file an annual report with the Division of Revenue (currently $75). - 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. New Jersey state tax treatment. - Pass-through entities (LLCs taxed as partnerships, S corporations) file the NJ-1065 (partnership) or CBT-100S (S corp) informational return. Income flows to members or shareholders, who pay New Jersey Gross Income Tax at graduated rates. Source: NJ Division of Taxation (https://www.state.nj.us/treasury/taxation/). - New Jersey requires a separate state S election. An S corporation that wants S status for New Jersey purposes must file Form CBT-2553 within the timeframe specified by the Division of Taxation; without the state election, the entity is taxed as a C corporation for New Jersey purposes even if it has federal S status. Source: NJ Division of Taxation, S Corporations (https://www.state.nj.us/treasury/taxation/pdf.shtml). - New Jersey enacted the Business Alternative Income Tax (BAIT) (N.J.S.A. 54A:12-1 et seq.) as an optional entity-level tax for pass-through entities, designed to preserve a federal state-and-local tax (SALT) deduction above the SALT cap. BAIT is elective; evaluate annually with a CPA. Source: NJ Division of Taxation, Pass-Through Business Alternative Income Tax (https://www.state.nj.us/treasury/taxation/businesses/baitact/). - New Jersey corporate business tax applies to C corporations at tiered rates. An S corporation that has made the NJ S election pays a minimum tax (currently $375 to $2,000 depending on gross receipts) rather than the full corporate tax. New Jersey S corp basics. - Federal S corp election alone does not grant New Jersey S status. File Form CBT-2553 for state S treatment. - Payroll. An S corp must pay its owner-employee a reasonable W-2 salary. New Jersey has unemployment insurance, disability insurance, family leave insurance, and workers' compensation obligations in addition to federal Social Security, Medicare, and FUTA. Why a New Jersey trades shop might elect S corp. Primarily for federal self-employment tax savings, which exist independent of the New Jersey state S election. The NJ minimum corporate tax on an S corp is generally lower than the full corporate tax on a comparable C corp. The BAIT election may add SALT benefits for higher-income owners. Rule of thumb. Start as a New Jersey LLC. When annual profit after a reasonable owner wage is high enough that federal payroll-tax savings clear payroll, retirement plan, and accounting costs, file Form 2553 (federal) and Form CBT-2553 (state). Evaluate the BAIT election each year with a CPA.