LLC vs S-Corp in Ohio

Ohio has a state personal income tax, no separate corporate income tax, and a gross-receipts tax (the Commercial Activity Tax, or CAT) that applies only above a sizable threshold. That combination shifts the LLC vs S-corp math in a specific direction for a trade business. The Ohio Secretary of State handles the entity filing. The IRS handles the tax classification via Form 8832 and Form 2553. An Ohio LLC can elect to be taxed as an S corporation. Ohio LLC basics. - Articles of Organization for a Domestic Limited Liability Company (Form 533A) filed with the Ohio Secretary of State. - Filing fee is $99. Expedited processing is available for an additional fee. - No annual report for Ohio LLCs. Ohio does not impose an annual report or annual LLC franchise fee at the Secretary of State. - Statutory agent (registered agent) must be appointed on the Articles; the agent must have an Ohio street address. - 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. Ohio S corp basics. - Ohio repealed its corporate franchise tax on general business corporations and does not levy a separate corporate income tax on C corps or S corps. The CAT replaced that system for most business entities. - Ohio Commercial Activity Tax. The CAT is a gross-receipts tax on taxable gross receipts sitused to Ohio. Beginning January 1, 2025, the annual exclusion amount is $6 million; businesses with $6 million or less in Ohio taxable gross receipts in the current calendar year are not required to register for or pay the CAT. The exclusion is indexed in statute and was raised from $3 million (the pre-2024 threshold) through the 2023 state budget bill. Confirm the current threshold with the Department of Taxation before assuming you are below it. - Personal income tax on pass-through income. Ohio taxes the owner's share of LLC or S-corp income on the individual return. Ohio reduced the top bracket to 3.125% for tax year 2025 and moved to a flat 2.75% rate on taxable income above the low-income exemption amount for tax year 2026. Ohio also offers a Business Income Deduction on the first $250,000 of qualifying business income ($125,000 if married filing separately), with a flat 3% rate on qualifying business income above the deduction (confirm current amounts on the Department of Taxation site). - Payroll. An S corp must pay its owner-employee a reasonable W-2 salary. Ohio withholding applies on wages, and employers register with the Ohio Bureau of Workers' Compensation and the Department of Job and Family Services for unemployment tax. Why an Ohio trades shop might elect S corp. The primary 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. At the state level, Ohio's Business Income Deduction can already shelter the first $250,000 of qualifying business income from the regular brackets for either an LLC or an S corp, so the state-tax difference between the two is smaller than the federal self-employment-tax difference for many owners. Rule of thumb. Start as an Ohio LLC. When annual profit after a reasonable owner wage is high enough that federal payroll-tax savings clear the payroll, retirement plan, and accounting costs, elect S corp. A CPA with Ohio construction clients can run the breakeven for your numbers, check how the Business Income Deduction and the CAT threshold apply, and confirm registration with the Ohio Department of Taxation and the Ohio BWC.