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.