North Carolina has a flat state personal income tax and a low, phasing-down corporate income tax, which changes the LLC vs S-corp math for a trade business. The North Carolina Secretary of State handles the entity filing. The IRS handles the tax classification via Form 8832 and Form 2553. A North Carolina LLC can elect to be taxed as an S corporation. North Carolina recognizes the federal S election. North Carolina tax context. - Personal income tax is a flat rate. NCDOR publishes 4.25% for tax year 2025 and 3.99% for tax year 2026 and later, with additional reductions possible in 2027 under Session Law 2023-134 rate-reduction triggers. - Corporate income tax is 2.25% for tax year 2025 and 2.00% for tax year 2026, scheduled to continue phasing down toward 0% by tax year 2030 under enacted legislation. - NC also imposes a franchise tax on C corporations and on S corporations based on net worth. S corps are subject to NC franchise tax even though the income passes through. North Carolina LLC basics. - Articles of Organization filed with the North Carolina Secretary of State, Business Registration Division. - Filing fee is $125.00. - Annual report required by April 15 each year after the year of creation. The fee is $200.00 by paper or $203.00 online (the online figure includes a $3.00 electronic-filing charge). - 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. North Carolina S corp basics. - An S corporation elected under federal law is recognized by North Carolina. The S corp files NC Form CD-401S and reports pass-through items to shareholders, who then include the income on their NC personal returns at the flat individual rate. - An S corp is still subject to NC franchise tax. The franchise tax is calculated on net worth with statutory minimums; confirm the current minimum and rate against NCDOR guidance for the filing year. - Payroll. An S corp must pay its owner-employee a reasonable W-2 salary. NC has state unemployment insurance tax administered by the Division of Employment Security once the business crosses the tax threshold. Why a North Carolina trades shop might 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. The NC flat individual rate applies to both structures in similar ways, so the decision is driven primarily by federal self-employment tax math, weighed against NC franchise tax and the cost of payroll and a separate corporate return. Rule of thumb. Start as a North Carolina LLC. When annual profit after a reasonable owner wage is high enough that payroll tax savings clear the payroll, franchise tax, retirement plan, and accounting costs, elect S corp. A CPA with North Carolina construction clients can run the breakeven for your numbers and confirm the NC franchise tax and annual filings.
NC · LLC vs S-Corp
LLC vs S-Corp in North Carolina
Entity formation, tax treatment, and when to switch.
Not legal, financial, or career advice. Trades Navigator compiles state board rules, statutes, and federal data into a navigable layer linked to primary sources. We do not maintain editorial attestation on each line. Always verify the specific number, fee, deadline, or rule against the linked primary source before relying on it. Confirm any decision with the relevant state agency, a lawyer, or an accountant.
Correction-report email coming soon.